Governor Fletcher Submits Balanced Budget to Legislature
Lean budget focuses on education, economic growth and making Kentucky Competitive with Neighboring States
Governor calls for reasonable sacrifice from all Kentuckians
My Fellow Kentuckians, Lt. Governor Steve Pence, President Williams, Speaker Richards, Chief Justice Lambert, Constitutional Officers, members of the General Assembly, and other distinguished guests it is my honor to address you this evening and to present the Administration budget for the next biennium.
Let me first thank my budget director, Brad Cowgill, and his staff for the tireless hours they have worked to prepare this budget for Kentucky.
They are an outstanding group of people who are truly public servants.
In one of our early budget meetings, my Budget Director reported on our fiscal condition.
He stated something like this, "Well, there is still a dim light at the end of the tunnel"
However, he followed that with, "But, if we don't do something immediately we can't afford to pay the light bill."
As you know, we took immediate action to ensure that we not only paid the bill but we brightened our way for the next challenging biennium.
The principles and strategies guiding my recommendations, reflect a singular goal,
to increase economic opportunity by making Kentucky competitive:
A Competitive Kentucky that provides a world class education and provides skills and lifelong learning,
That empowers citizens to choose healthy lifestyles,
Where families and government are not overwhelmed with the cost of healthcare,
A Competitive Kentucky that aggressively pursues business and career opportunities.
And makes strategic investments for the future,
And a Competitive Kentucky that doesn't solve its budget problems by overburdening people or businesses with higher taxes.
This budget is conservative, goal-driven and compassionate.
It reflects a lot of tough decisions.
And it calls on each of you and every Kentuckian to make reasonable sacrifices for a better future.
It is a path that will take us together to a place we all want to be.
Our travel along this path will begin on July 1.
Our time here is brief, well maybe with the exception of Rep. Bruce.
But the course we together choose determines the character of the distant future.
Before we chart the biennial course, let us examine the ground on which we stand. and the territory we have come through since the inauguration.
It's now clear that I took the oath of this office just in time for the perfect storm . . .
a storm with a $302 million shortfall in the current fiscal year, and a deficit in the next fiscal year predicted to be $710 million.
This meant that within the first eighteen months of this administration we would have to resolve a financial crisis exceeding one billion dollars.
We went to work immediately, realizing that action was urgently required on two fronts:
First, we needed to get current year spending under control to prevent our checks from bouncing and to avoid shutting down operations before the end of this year,
Second, we needed to reduce spending by an additional 2.5% in each cabinet in order to form a temporary savings account of at least $100 million which we could spend in the next year.
I am pleased to report success on both fronts.
On January 5, I signed a budget reduction order bringing spending under control and bringing the current year budget into balance.
This goal has not been achieved entirely by the efforts of the Executive Branch.
I am grateful to Chief Justice Lambert for the spending reductions of nearly $2 million which he has pledged on behalf of the Judicial Branch.
And I am grateful to President Williams and Speaker Richards, for the contribution of over $800,000 from the legislative budget.
To all of you who have given time, energy, encouragement, and even criticism I say thank you.
Working together, we are going to make it.
Our goal of saving at least $100 million before June 30 will be achieved without cutting Medicaid or SEEK funding of local school districts.
And that money will permit our government to avoid the more dramatic cuts next summer which so many Kentuckians have feared.
And it will permit us to examine the budget without reducing spending from its current levels, but as the continuation of a baseline that we have already right-sized to the available revenue.
On July 1, our Commonwealth will not step off into a chasm.
We will step forward on a firm and level spending path.
In recent years we have relied heavily on nonrecurring revenue sources to pay our bills.
We've been spending a lot more than we've been taking in.
Because of the upward trend in government spending, our state has been withdrawing from our savings accounts in large amounts.
They are now depleted, and we must stop this practice.
Eliminating the habit of regularly spending more than we take in and establishing what we call a structural balance is an important goal.
And I am pleased to report that in the second year of this budget, we will eliminate the structural imbalance.
We still spend relatively small amounts from the restricted funds and only amounts that represent new recurring dollars.
The suit we must wear now is smaller.
It may pinch at our sleeves and waistline.
But if we shape up and exercise discipline, become fit and trim, we will show our fitness and be more prepared and more competitive.
When I ran for Governor, I promised to balance our budget without increasing the burden of taxes on hardworking Kentuckians.
I have kept my promise.
I also made a second promise.
That I would manage government aggressively to increase efficiency and add value to government spending
Efficiency and value mean doing the most with the least.
In the private sector, competition demands efficiency.
But efficiency in government is achieved only through self discipline and diligent stewardship.
Even if our government was overflowing with a surplus, it would still be our duty to give the people of Kentucky the best value for every dollar they give us.
Budget cuts can be done quickly, but efficiency takes time.
Time means I need the flexibility that has been given in the past.
Without this flexibility, programs will suffer unnecessarily as our ability to manage and move resources would be restricted.
With this flexibility and your oversight we can make our government more effective and efficient.
For example we are stopping the newspaper clipping service that had been used for years, saving up to $100,000 a year.
If we replaced impact printers with laser printers we could save almost $2 million in local tax billing.
We have 40 different marketing divisions many of which can be merged.
We will look at every area but that takes time.
Together we can stop the wasteful spending, provide better services and make a more welcoming place for those who create jobs.
This budget reflects a streamlined government. It gives us the technology and modern management tools we need so that our government can do more with less.
But, our broader focus is on opportunity, that means careers . . .careers for Kentuckians so they can stay and prosper right here at home.
Building careers builds prosperity. That was the test which every line of this budget had to pass.
We will not overlook the pillars of our great Commonwealth.
But the global economy is changing rapidly.
To prosper we will change with it and we will seize the opportunities of the Knowledge Economy.
To do this, we will recognize our universities and our community colleges as essential economic engines.
They transfer technology from the laboratory to the work place.
They are the incubators of human capital.
And for our colleges and universities to fulfill this role, we must invest in their training, technology transfer and research.
That's why our budget makes the wise investment of expanding research space in both of our major universities.
We are building future careers by our investment in seven Community and Technical Colleges across the state.
We have invested in every regional University in our Commonwealth.
This strategic investment will build careers from the Purchase area to the Big Sandy and from Northern Kentucky to the Cumberland.
We are also investing in a math and science academy to keep the best and brightest minds in Kentucky.
We are in tough times but it is no time for timidity.
We must make these investments now.
Our budget supports a coal bed methane initiative and the advancement of clean coal technology projects, including seed money to position Kentucky to compete for a billion dollar federal pilot plant.
As we advance our knowledge economy we will also invest in our great tourism potential.
We are making significant investments in our state parks and investing in marketing Kentucky to foster a rebirth of tourism and convention business.
We also want our communities to be compassionate and fair and we are helping those families who live in the rumbling flight path of the Louisville International Airport.
And we recognize that no part of this state will be competitive without clean water and an adequate waste water system.
Therefore, we have included money for such projects and instructed that they be chosen based on need and economic development potential.
I have provided over $25 million dollars for economic development to support our New Economy initiatives.
And we will keep our promise to the farming community that half of the tobacco settlement money will be set aside for advancing agriculture.
To accomplish this I will work with Commissioner Ritchie Farmer who cannot be here tonight while he's promoting Kentucky agriculture.
I am also doing everything we can to ensure that we preserve our outstanding military facilities. That's why my budget includes $1.2 million for Kentucky's Base Realignment and Closure efforts.
The average family borrows more than 30% of their income for their homes and cars
To do the proposed projects, we are borrowing less than past years and obligating only a responsible 6% of revenue for debt service.
To keep a solid low interest bond rating I encourage us not to exceed this level.
And I will not support borrowing to meet our operational expenses.
Delaying these strategic investments will only delay us moving Kentucky forward.
I urge you to join me in support of them.
In addition to these economic opportunity investments, I want to increase student scholarships in accordance with the statutory dedications of Lottery funds.
Beginning in Fiscal Year 2006, our state will dedicate 100% of lottery funds to education investments.
Second, our Adjutant General Storm, which by the way is a most fitting name, is passionate about recruitment and taking care of our troops especially as they are pulled from their homes to protect our freedoms.
To that end he has persuaded me.
We are providing college tuition for those brave men and women of our National Guard.
Third, I have included in the second year $5 million toward ending the funding disparity at our regional universities--without a reduction in any university's operating funds.
Fourth, funds are provided to Kentucky State University for its land grant match with the Federal Government to fund the renovation of Young and Hathaway Halls.
At long last, this brings our Commonwealth to full compliance with the partnership agreement with the Federal Office of Civil Rights.
Fifth, I want to provide our colleges and universities reasonable funding for the operation and repair of existing facilities.
I have studied closely the needs of higher education in Kentucky.
I am convinced that even in tight times these five initiatives will help make Kentucky competitive.
But we'll not be competitive until all have been empowered with the critical thinking and technology skills required in the Knowledge-Based economy.
To impart these skills it is more essential than ever that we retain and attract outstanding teachers in our classrooms.
My goal is to raise the salaries of Kentucky teachers to parity with the average of our neighboring states.
To achieve that goal we must press forward even when times are hard and money is tight.
Therefore, I will insist that we increase the salaries of Kentucky classroom teachers by 1.5% in the first year and 3% in the second year.
Classified employees should be provided compensation increases of the same percentages.
During my campaign, I spoke of the need to get more money into the classroom where the magic of learning occurs.
In the months ahead, we will be suggesting ways to reduce overhead and get more resources into the classroom and to reduce the bureaucracy of the paperwork that teachers face.
An initiative that our first Lady is very passionate about is reading.
We believe, and the statistics prove, that children who cannot read at grade level by the third grade are far more likely to fail in every aspect of life.
I am grateful to Senators Kelly and Westwood and Speaker Richards and Representative Moberly for their leadership on our Read to Achieve initiative.
Over the course of the next two years, I have increased the funding for our "Read to Achieve" initiative by $4 million to address the achievement gap we have in specific counties, in addition to the current funding for reading initiatives across the state.
Additionally, I have made reading a priority in directives for surplus spending.
It is absolutely imperative that we move forward aggressively with this early reading initiative.
Without raising taxes we want to keep our educational gains growing.
To do that we feel it is prudent and appropriate that for one year we ask our local school districts to use their reserve funds held by law in reserve for tough times to help us reach our goal for our teachers.
The current reserves held for such a time as this is over $255 million or about 5 times what the entire state has in reserves.
By comparison, the 1.5% increase in the salaries of teachers and classified personnel
will result in an expense of $36 million.
To take us to the next level it is critical that we recognize that the single most important factor in the education of a child is the quality of the teacher in the classroom.
Thus, in the most difficult fiscal year '05 we have authorized local school districts to reduce their reserve requirements to provide for this modest increase in salaries.
For the handful of school districts for whom this would create an extraordinary problem, we have created a supplemental fund.
In the second year, the state will fully fund both the 1.5% increase and the additional 3% increase.
In their evaluation of this proposal, I encourage school administrators to remember this:
We have and will continue to permit no cuts in the state's SEEK funding of public schools.
In fact, I propose to increase the basic SEEK funding in the second year.
Finally, I have also protected Family Youth Service Centers to the greatest extent possible.
We wish we could do even more and we all know that tax modernization will make that possible in the future.
During this last year I committed to other goals as well:
To deliver a dollar's worth of service for every dollar of taxes, to resist pressures to raise taxes,
to make the government accountable to the will of the people, free of improper influences,
to bring efficiency, modern management and high technology to the delivery of essential services.
We are in the process of revising how we review personal services through a system that will focus on maximizing value when services are needed through outsourcing.
Fiscal responsibility involves particularly tough choices in the field of medical care and health insurance because of the exploding costs.
The state government's cost of healthcare benefits for state employees and local school districts, if left unmanaged, will rise at unprecedented rates-35% in the next two years.
That level far exceeds the current financial capacity of our government.
A bold new plan of action is required.
That plan will enable us to empower every participant to make meaningful choices which effect their own health . . .
A new plan with health education programs and healthy lifestyle incentives, exercise programs, obesity, smoking and disease management, and drug cost controls.
A plan with those components will create savings.
In addition, we will make available a larger selection of coverage options to move us toward a more consumer driven healthcare system.
That means we need to include increased personal responsibility in our plans.
In the short run, we must make the employee healthcare plan more similar to employee healthcare programs in the private marketplace.
That means there will be increased cost sharing on everyone's part.
To ensure fairness, we will provide reduced rates to employees at the lowest end of the compensation scale, and to employees who need to enroll family members in the plan.
No employer, who expects to receive the respect and loyalty of employees, should fail to show respect and loyalty to them in return.
Many people predicted that balancing the budget without raising taxes would force us to make drastic cuts in the number of state merit employees.
We have not done that.
But, instead we have given state government employees what we have done for teachers - a 1.5% raise in the first year and 3.0 % raise in the second.
We have also funded the technology government employees need to do their work.
And, we will continue funding the Kentucky Retirement System
at its current rate.
For a competitive Kentucky we must also modernize Medicaid.
If Medicaid grows at the current rate and remains unmanaged it will provide neither quality healthcare nor remain sustainable for Kentucky.
To begin that work, I have included money to replace our 20-year-old computer system that is written in COBOL.
Only two living souls in state government possess the ability to maintain this antiquated system. We must upgrade our technology.
The bottom line is that we must establish better care, benefit and cash management of Kentucky's Medicaid program to ensure the best care possible for our patients.
We must remember that quality care is less expensive than poor care.
The goal of this Administration is to maintain and better deliver Medicaid services within the current budget.
We will ensure more education and preventive care.
One-quarter of the Medicaid budget goes toward helping Medicaid patients with diabetes and asthma - this will be eased with education and disease management.
Some patients receive over 160 prescription medications in one month under the current Medicaid system - that is simply bad medicine.
Kentucky's Medicaid patient's annual prescriptions are more than double the national average.
Modernizing Medicaid will bring us in line with the national average.
Opportunity cannot exist without safe homes and communities.
I will maintain among the State police a sworn compliment of officers at the current level.
We will also provide funding to replace the outdated and inadequate facility in which criminal evidence is retained.
We are going to provide budgetary relief to the offices of the Commonwealth's Attorneys and the County Attorneys.
Their work is essential to the law and order of our communities.
Sadly, our Corrections Department is confronted with increased populations creating new budgetary challenges.
We have proposed funding to open the Elliott County prison to provide for additional needed prison capacity.
But we have done so under the plan of outsourcing and privatization to insure that we can sustain its operation.
This will secure jobs for the region while not taking funds from other important programs.
I have also provided funds to open and operate three new juvenile detention centers.
We all know that our state has been ravaged by drugs.
Lieutenant Governor Pence, in his capacity as Secretary of Justice, has undertaken one of the state's most critical missions.
We will be increasing our emphasis on treatment as an important component of a long-term solution.
We will use $24 million in federal funds for treatment programs, and we will be leveraging our treatment efforts by reaching out to appropriate faith-based programs as partners.
We will aggressively pursue federal grants, and we are confident this proactive approach will lead to greater federal support of our public safety programs.
But we have lost federal funding of our drug court program, and I propose that we appropriate, to the Judicial Branch, the funds needed to continue that program.
In fact, I have included in the second year of this budget at the request of Chief Justice Lambert and Senator Stivers sufficient funds to extend the drug court program to 61 new counties.
Now, before I conclude, I am aware that we have made tough decisions that will draw some criticism.
But, let me remind you that our current tax code deters economic development and does not reflect the new, knowledge-based economy.
By modernizing our tax system, we will be able to generate economic growth, expand opportunity and avoid such tough times in the future.
In my life as a doctor I have presented tough choices to troubled families facing the gravest days of their lives.
As a new physician filled with fresh knowledge I remember an early encounter with a patient, I gave him all the diagnostic conclusions, the "what ifs" and my most likely diagnosis.
I recommended a course of treatment.
He replied, "That's all well and good but am I going to make it, am I going to get better?"
I had failed to give him the most comforting salve.
I learned then that a patient needs more than medicine, they need hope.
Tonight I have presented to you my prescription for Kentucky's next two years.
It is more than medicine.
It is hope for Kentucky's future.
Thank you, may God bless you and may God Bless our great Commonwealth.