Bevin, Beshear clash over budget outlook

FRANKFORT, Ky. - Gov.-elect Matt Bevin said Tuesday that he is inheriting a "financial crisis" from departing Gov. Steve Beshear.

"According to the Beshear administration, they are leaving Kentucky burdened with a projected biennial budget shortfall of more than $500 million," Bevin said in a news release naming John E. Chilton, of Louisville, as the new state budget director. "The appointment of a highly qualified budget director, therefore is of tremendous importance."

Asked to elaborate on Bevin's comment about a financial crisis, the Bevin transition office released an analysis of the state's 2016-18 budget outlook by the Beshear administration's budget office.

But Beshear said in a statement later Tuesday that there is no shortfall and that Bevin is simply confronting a problem he confronted repeatedly the past eight years of dealing with needs and requests that outstrip available revenues.

"I have had to balance and rebalance the state's budget 15 times," Beshear said. "We are leaving the state's finances in much better shape than what I was presented with my first year in office," Beshear said.

But Jessica Ditto, spokeswoman for the Bevin transition team, said Beshear's comment contradicts the analysis of his own budget staff.

"The fact is, he has kicked the fiscal can down the road repeatedly..." Ditto said.

The 2016-18 budget analysis by Beshear's budget office accounts for state General Fund revenue projections through the next two years, and then subtracts a continuation of base spending, "required/mandated" additional spending, and some other modest increases in spending such as a 1 percent pay raise for state employees.

Needs for more money in next budget

The bottom line of this analysis shows a revenue shortage of $279 million in the 2016-17 fiscal year and a shortage of $506 million in 2017-18.

Like any future budget analysis, this one is based on many assumptions.

And it is largely thrown out of balance by the single appropriation increase of more than $520 million requested next year by the Kentucky Teachers Retirement System - the amount that the system's actuary said is needed to deal with its $14 billion unfunded liability.

Other required additional expenditures in this analysis include $133 million next year for normal growth in Medicaid, $62.3 million needed next year to pay for Medicaid expansion, $60 million needed for Kentucky Employees' Retirement Systems and $37 million for school funding to cover a larger student population.

Most of the largest listed budget needs next year - including those for the retirement systems and Medicaid expansion - have been known for months.

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When he was asked how he would deal with balancing the budget in the face of these needs, Bevin told The Courier-Journal in October, "It will have to be done as part of the budgeting process...Nobody has an answer to that now."

Ditto said that Bevin is not complaining about the outlook, but is concerned that comments Beshear is making as he leaves office about the recovery of state revenue growth and a projected revenue surplus this fiscal year give Kentuckians the wrong impression of the outlook facing Bevin.

"Much work is needed to get Kentucky's financial crisis resolved," Bevin said in Tuesday morning's news release.

But about his new budget, Bevin said Chilton "is up to the challenge."

Chilton, 66, is a certified public accountant with more than 40 years of experience. He is a co-founder of Mountjoy Chilton Medley LLP.

Beshear took office eight years ago as the national economy was plunging into the worst economic recession since the Great Depression. He repeatedly had to cut spending and employ other budgetary moves as revenues fell far below budgeted expectations.

The economy has recovered and state revenues are growing again at a healthy pace. But Bevin faces a different problem of demands growing faster than revenues - mostly demands to cover needs of Kentucky's woefully under-funded public pension systems.

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Tom Loftus can be reached at tloftus@courier-journal.com or at (502) 875-5136.