KENTUCKY YOUTH ADVOCATES - Press Release

For Immediate Release

February 2, 2009

Contact:

Terry Brooks

Office: 502-895-8167 x113

Cell: 502-235-2396

CURRENT BUDGET PROPOSALS ARE INSUFFICENT,

FAIL TO TAKE ECONOMY INTO ACCOUNT

Louisville (Ky.) -- As the General Assembly returns to Frankfort this week, policymakers will be making very important decisions on how to deal with a $456 million budget shortfall. The governor proposes a 70-cent increase in the cigarette tax, transfers from other funds, and direct spending cuts to state agencies to close the budget gap. In the meantime, legislative leaders have asked state agencies to come up with a plan to cut their budgets by 6.7%, intent on solving the shortfall with spending cuts alone.

While the Governor’s proposal is certainly preferable, neither proposal takes into account the troubling economic climate and will result in significant job loss in the public sector at a time when unemployment is mounting in the private sector.  What’s more, neither proposal does anything to strengthen the budget against a similar, possibly worse budget shortfall next year.

“The governor’s proposal is a solid place to start.  It would make up for the $456 million that we are short for this budget cycle.” says Terry Brooks, executive director of Kentucky Youth Advocates. “But, it is only a short-term solution and we’re going to be in the same position in 2010. We really need to move past the quick fixes and give Kentucky's tax structure a comprehensive overhaul.”

The governor proposes to close the gap with the following steps:

• New revenue - $81.5 million by increasing the cigarette tax by 70 cents.
• Transfers - $40.6 million from restricted funds and $178.9 million from the budget reserve trust fund (A.K.A. rainy day fund)
• Spending cuts - $147.1 million in direct spending cuts to agencies and $8 million by furloughing state working for three days.

“The increase in the cigarette tax is sound fiscal policy, and the transfers are entirely appropriate as a short-term fix,” says Brooks. “However, the proposed spending cuts have the potential to worsen Kentucky’s rising unemployment to the tune of 4,000 lost jobs. In these economic times, that is a troubling scenario.”    

The General Assembly passed a lean budget in 2008, cutting $432 million in spending. Without additional revenue, Kentucky will have to reduce spending by $888 million over a period of less than 2 years.  Many worry that further cuts are likely to both endanger Kentucky’s most vulnerable citizens and exacerbate economic problems.

Further cuts will necessarily lead to further job losses at the state level, contributing to Kentucky’s rising unemployment rate. Economists predict that the national economic downward spiral will not bottom out until early 2010. Nobel Prize winner Joseph Stiglitz asserts that in times of recession it’s better to raise taxes on those who can afford it than to cut spending.  

“We need leaders who lead,” says Brooks. “It does, in fact, take political courage to talk about increasing revenue. We have to get serious about sustaining the future of our children and grandchildren.”

A complete analysis can be found on Kentucky Youth Advocates’ website at http://www.kyyouth.org.