The Kentucky Budget OutlookPresentation to the Friedell Committee

November 10, 2013

Source: KCEP analysis of Office of the State Budget Director data, Consensus Forecasting Group October Estimate

2011 2012 2013 2014 2015 2016 $-

$100

$200

$300

$400

$500

$600

$534

$332

$257 $231 $230 $221

Annual New General Fund Revenue Since Recovery Began (Millions)

6.5%

2.3%

3.8%

2.4%2.5%

2.8%

Revenues• Still-weak economy• Tax system inadequate, outdated, too many holes

Expenditures• Still-weak economy• Costs associated with 1) replacing one-time funds,

2) inflation and 3) paying back past liabilities• Pressure to roll back harmful cuts and make

investments that would move KY forward

Barriers to the Budget Kentucky Needs

Individual Income Tax40%

Sales and Use Tax32%

Corporate Income Taxes7%

Property Taxes6%

Severance Taxes3%

Tobacco Taxes3%

Lottery2%

Other7%

Sources of Kentucky's General Fund (2013)

Source: Office of the State Budget Director

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

131650

1700

1750

1800

1850

1900

1950

The Kentucky Jobs Deficit

Jobs needed to keep up with popu-lation growth

Jobs lost since December 2007

Employment level since 2000

Tho

usan

ds o

f Jo

bs

Source: KCEP analysis of Economic Policy Institute data

Source: KCEP analysis of Economic Policy Institute data

-3

-2

-1

0 1 2 3 4 5 6 7 8 9 10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

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36

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41

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48

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50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

0.850

0.900

0.950

1.000

1.050

1.100

1.150

Kentucky Job Recovery From Recession Slower than Previous Re-cessions

1981 Reces-sion1990 Reces-sion2001 Reces-sion2007 Reces-sion

Months from start of recession

Source: KCEP analysis of Economic Policy Institute data

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012$14.00

$14.20

$14.40

$14.60

$14.80

$15.00

$15.20

$15.40

$15.60

$15.80

$16.00

Median Kentucky Workers' Real Wages Are Falling

Source: KCEP analysis of Economic Policy Institute data

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201210%

15%

20%

25%

Kentucky's Poverty Rate

Source: KCEP analysis of Office of the State Budget Director, BEA data

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

20132014

20152016

20172018

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

Kentucky's General Fund Revenue as a Percent of State Personal Income

Source: Center on Budget and Policy Priorities

FY2008 FY2013 FY2014 $3,000

$3,200

$3,400

$3,600

$3,800

$4,000

$4,200

$4,400

$4,600

$4,800

$5,000

$4,817

$4,409 $4,340

Per-Pupil SEEK Spending Has Declined 9.9 Percent Since 2008 (Inflation-Adjusted)

Source: KCEP analysis of Office of the State Budget Director data

Cuts to P-12 Education Programs Since 2008

FY 08 FY 13 Dollar Change

Percent Change Inflation-Adjusted Percent Change

Textbooks 21.7 0 -21.7 -100% -100%

Extended School Services 31.8 12.3 -19.5 -61% -65%

Professional Development 15 5.3 -9.7 -65% -68%

School Technology 39.8 31.5 -8.3 -21% -29%

Career & Technical Education 30.3 23.7 -6.6 -22% -29%

Safe Schools 10.4 4.2 -6.2 -60% -64%

Preschool 75.1 71.3 -3.8 -5% -14%

Total 224.1 148.3 -75.8 -34% -40%

Source: Kentucky Council on Postsecondary Education

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130%

10%

20%

30%

40%

50%

60%

70%

80%Cost of Higher Education Shifting from State to Students

State Share of Total Public Funds

Student Share of To-tal Public Funds

Health & Human Services Cuts

• Rapid transition to Medicaid managed care

• Mental health appropriations not increased for 14 years, Medicaid rates frozen since 2001

• Public health department funding 23% below 2008 level

• Cut to child care subsidies to lowest income eligibility in country

Source: KCEP analysis of the Budget of the Commonwealth

General Fund Cuts to Selected Agencies from Original 2008 Budget to 2014

2008 Enacted 2014 Enacted Percent Change Inflation-adjusted percent change

Kentucky Arts Council 4,182,500 2,797,900 -33% -41%

Kentucky Educational Television 16,816,100 12,049,200 -28% -36%

Attorney General's Office 14,113,100 10,292,300 -27% -35%

Secretary of State 2,298,100 1,681,900 -27% -35%

Libraries and Archives 14,689,300 11,107,500 -24% -33%

Auditor 5,828,300 4,479,000 -23% -32%

Public Health 73,823,000 56,884,600 -23% -31%

Commission on Women 266,200 212,400 -20% -29%

Commission for Children with Special Health Care Needs

5,917,000 4,761,600 -20% -28%

Department of Career and Technical Education 29,894,500 24,092,400 -19% -28%

Division of Air Quality 1,408,600 1,149,900 -18% -27%

Deaf and Hard of Hearing 933,000 775,900 -17% -26%

State Police 80,305,900 67,166,600 -16% -26%

Environmental Protection 26,118,000 21,900,400 -16% -25%

Vocational Rehabilitation 13,134,400 11,109,500 -15% -25%

Community and Technical College System 226,331,100 191,455,700 -15% -25%

Universities 881,434,300 750,119,000 -15% -24%

Kentucky Nature Preserves Commission 1,166,500 1,000,900 -14% -24%

Division of Water 11,965,300 10,513,800 -12% -22%

Commission on Human Rights 1,859,100 1,648,700 -11% -21%

Source: Kaiser Family Foundation State Health Facts

2008 2009 2010 2011 2012 640,000

660,000

680,000

700,000

720,000

740,000

760,000

780,000

800,000

820,000

Medicaid Enrollment in Kentucky (June of Each Year)

Source: KCEP analysis of Council on Postsecondary Education data

2008 2009 2010 2011 2012 170,000

175,000

180,000

185,000

190,000

195,000

200,000

205,000

210,000

215,000

Kentucky Public Higher Education Enrollment (Fall)

Source: KCEP analysis of Kentucky Retirement Systems data

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

$(300,000,000)

$(250,000,000)

$(200,000,000)

$(150,000,000)

$(100,000,000)

$(50,000,000)

$-

Annual Contribution Shortfalls to State Pension Fund

Source: CFG October forecast, June 27 Office of the State Budget Director presentation

Additional Revenue Additional Costs$0

$100

$200

$300

$400

$500

$600

$700

October Forecast230 Replace One-Time Funds Used to

Balance the Budget$157

Payment Toward State Pension Sys-tem$148

Inflation in Health Care Prices$115

1% SEEK Funding Increase $29

1% Increase in Teacher Pay $23

Fund Critical Gaps in K-12 Programs Such as Textbooks & Professional Development

$64

Restore Childcare Assistance & Pro-tective Services Cuts

$87

New Revenue Wouldn't Even Cover Basic CostsM

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Tax Commission Recommendations

• $659 million in net new revenue (8% of General Fund)– $475 million is from reducing

deductions/exclusions in income tax

– 15% refundable EITC– Elimination of property tax limit– Expansion of sales tax to some

services– Tobacco tax increase– Utilities gross receipts tax for

education

Moving Forward with Tax Reform

Kentucky Center for Economic Policywww.kypolicy.org

859-986-2373jbailey@kypolicy.org