Budget Forecast Bad… Light Up!

Former Gov. Matt Bevin is leaving behind a $1.1 billion deficit for Gov. Andy Beshear — and all of us.

So much for being the hotshot CEO he bragged about for four years.

Bevin’s budget director, John Chilton, sent a four-page memo describing the grim budget outlook to Beshear’s transition team and legislators last week. Around the same time, Moody’s Analytics reported that Kentucky is the third-worst prepared state if the U.S. goes into a recession. 

A $1.1 billion deficit should be evidence enough for Republicans that their austerity experiment did not work: Kentucky cannot cut its way to prosperity, to steal a chestnut from President Obama.

Budget reductions and tax cuts do not lead to growth or even the status quo.

We — Kentucky — need new sources of revenue.

Now, maybe, given the grim assessment by Bevin’s own budget director, the Republican-controlled state legislature will realize it can no longer pass up on the easy revenue generators, such as expanded gaming, sportsbook wagering and marijuana legalization.

Beshear has less than two months to craft his first two-year budget, which he will propose to a Republican-controlled legislature in late January. He and the legislature will have to work some major magic to meet these budget demands, not to mention what Beshear promised as priorities (including $2,000 annual raises for teachers, who helped secure his victory).

But, there is plenty of new revenue to be had — lawmakers just need to find the will to do it.

Republican Senate President Robert Stivers and Majority Floor Leader Damon Thayer made a joint statement in the closing weeks of the election that, “Any bill proposing casino gambling would be dead on arrival.”

Hopefully, this was just campaign bluster.

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They need to reconsider and try leading their caucus to recognize what’s going on around us: Four Kentucky border states have casinos, and three will allow sports betting by early 2020.

Kentuckians are gambling and not just at race tracks, “racinos” or the lottery. They’re taking their money across the border to spend on sports wagering, cards, slots and otherwise.

Kentucky is also smoking — and ingesting — marijuana. Starting next month, anyone 18 or older can drive over to Illinois to purchase weed legally (better smoke it there!).

This is an area both Republicans and Gov. Beshear need to reconsider. Beshear said he supports legalizing medicinal marijuana because of its potential to help fight opioid addiction. But, staring at this budget deficit, he needs to balance all of his priorities with the economic impact of full legalization.

The Legislative Research Commission will release a budget report of its own soon. It will be good to see the nonpartisan accounting of how badly Bevin failed as CEO of Kentucky. Plus, it will provide a more solid baseline for Gov. Beshear and lawmakers.

Chilton’s budget memo included costs of proposed new spending “that has been discussed.” For example, Beshear’s proposed $2,000 raise for every public school teacher is included, costing $97 million a year. However, Chilton did not explain in the memo how dynamic his account was for new spending. For example, does this account for the economic activity as a result of these raises? Teachers will be paying taxes and spending more, so what is the net impact on the budget?

The LRC will provide a more thorough accounting of the budgetary impact of Beshear’s wish list.

Finally, Republicans need to realize that they can’t continue to cut taxes on the corporations and the wealthiest Kentuckians. Bevin and Republicans’ half-cooked efforts at tax reform in 2018 and 2019 were a disaster. “The General Assembly passed a significant tax law in 2018 — a large cut in taxes for the top 5% and an increase for everyone else that would provide a short-term revenue bump, but lead to long-term erosion,” wrote Pam Thomas of the Kentucky Center for Economic Policy. Thomas also noted that both major bills were given only one-day notice in the legislature — introduced one day, passed the next — without time for public examination.

Then, in a 2019 “clean up” bill designed to fix unintended consequences, the legislature included $106 million in new tax breaks for special interests.

This is not uncharted territory for a Gov. Beshear. Steve Beshear walked into office facing a $340 million deficit, which got worse as the Great Recession hit during his first year in office. He worked with a divided legislature — they did make cuts, but they also raised the cigarette tax, apply the state sales tax to alcohol sales and find other ways of growing revenue.

Maybe it is time the legislature will learn from history. Our state depends on it.

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