Gov. Matt Bevin proposed a big financial haircut for state agencies a few days ago.
What we find ominous about it is that this is not part of a widely anticipated austerity program to help the state cope with its runaway pension deficits. Rather the cuts are intended to offset a projected $200 million shortfall in the state’s operating budget this fiscal year.
Bevin wants to cut spending 17.4 percent across most state agencies. For the moment K-12 education, higher education and prisons are exempted.
State Budget Director John Chilton says this is the level of savings needed for the state to cover the budget shortfall and add $150 million to its reserves, which were depleted by a $138 million shortfall in the fiscal year just ended.
Cuts of that magnitude would be a heavy lift even in the private sector. It is, frankly, unheard of in government. One need only look back to the wailing and gnashing of teeth when Bevin attempted to cut 4.5 percent from state spending in 2016 to get a feel for that.
And predictably Bevin is finding the going tough. The governor has identified $82.5 million of cuts he believes should be made, including just under $1 million from his own office. But he doesn’t have authority over at least $56 million of the money because it belongs to the court system, the legislative branch and constitutional officers such as Bevin’s nemesis, Democratic Attorney General Andy Beshear.
It is a safe bet Bevin will see little cooperation from Beshear. Chief Justice John Minton also seemed to signal resistance when he pointed out the court system accounts for 3.3 percent of state spending despite employing 10 percent of its workforce.
State revenue has proven volatile over the years. There is some hope we suppose for positive revisions in the months ahead. But revenue clearly went in the wrong direction last year. It would be reckless for Bevin to ignore projections for the current year in light of that.
This dilemma is disturbing on a couple of fronts. One is that the shortfalls suggest the underlying Kentucky economy is not performing as well as it should. The other is that the current trend makes it that much more difficult to keep the pension crisis from sinking the whole ship.
Chilton was recently quoted in the Sun as saying all things being equal, it would take a permanent 34 percent cut across all of state government to counter the $33 billion-plus deficit in the state’s pension funds. That solution is obviously unrealistic. One wonders how the state could even begin if Bevin actually did accomplish the 17 percent cuts he is already proposing.
But the pension funds are on the brink of collapse. And that leaves Kentucky facing an awful dilemma. We are already a high-tax state, particularly when compared to neighboring states that compete with us for jobs. The result is that we are mired in an economy that for generations has not grown apace with the national economy.
But the remedy — cutting taxes to competitive levels — has been put beyond reach by a generation of politicians who looted the pension funds so they could keep spending on political payola for the folks back home. It reminds us of the late Margaret Thatcher’s observation about socialism. The problem with it, she said, is that eventually you run out of other people’s money.
That’s what has happened in Kentucky. And it is pensioners who are left dangling.