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PHILOSOPHICAL MEANDERINGS AFTER BESHEAR'S ELECTION

Will Governor Beshear call a Special Session of Kentucky’s General Assembly to address the state's
Road, Medicaid & General Fund deficits?

Will Governor Beshear---who said he had no further political ambitions---work diligently to coordinate
with colleagues in both the House and Senate to ensure that our state’s financial interests are stable,
efficient and adequate? In September 2008 Governor indicated he thought passing Casino legislation
and raising cigarette taxes was sufficient to fix KY's multi year deficits!

Can Governor Beshear and the General Assembly do the following?

1. Collect estimated $350 million usage property, u-drive-it taxes and registration fees on all Ky owned
mis-register cars
 COLLECT $150 million of state & local government tax evasion among Kentucky owned cars and
trucks thru Division of Vehicle Enforcement Officers implementing statewide titling & registration
enforcement in conjunction with Department of Revenue to locate, identify, value, assess, bill and
collect from all Ky car owners operating “Kentucky tax situs” cars using Ky highways; I.e, estimated
200,000 of'em in 2009
2. Eliminate costly administration of un-equalized weight-distance tax on trucks & recoup by raising
motor fuels and truck registration fees
3. Amend H.B. 44 making permanent 15.5 cents real estate property tax rate
4. Amend H.B. 44 increasing rate cap from 4% to 10% while giving more power to local governments to
tax

IF THAT IS NOT ENOUGH:


• Cut 1.5 BILLION appropriation (current spending) over 2009-2013 bienniums simultaneously
enhancing resources (tax revenues) making them stable, efficient, competitive and fair---part of this
would be using revenue-neutral strategy modernize Kentucky’s obsolete tax base STARTING AS
RECOMMENDED BELOW:

 Cut $100 million in personnel payroll in administration, legislative and judiciary branches of State
Government over next two bienniums, starting with elimination of 70 PVA unneeded statutory
positions saving state $50 million followed up with separating Department of Revenue from Finance
Cabinet.

1.Eliminate $100 million of state personnel expense


a. save $50 million through elimination of seventy non-merit statutory officer positions
b. save $50 elimination of merit and non-merit positions
2. eliminate sixteen hundred out of 12,250 non-merit jobs paying >$50,000
3.Amend state employee KRS eliminating language “replace 5% increase to state employee’s” with
“pay-for-performance”
4.Downsizing by ,600 non-merit positions requires awarding pay increases from those savings to merit
job holders whose positions receive added duties from downsizing
5.Eliminate practice of technical state employees from being rehired immediately after retiring
6.Start all new employees on a defined contribution retirement program
7.Review estimated 85,000 personal service contracts eliminating unnecessary & political ones
8.Merge state, county, state police and teacher retirements into one
9.Cut 30% of state tax expenditures AUTOMATICALLY siphoning tax resources from General Fund
10.Replace income tax and sales tax exemptions with tax on services
11.Eliminate all Corporate Tax Shelters
12.Reduce state tax expenditures by 30% for 2009-2013 period

Why did Kentucky have a budget shortfall?


During past 25 years Kentucky’s budget has been operating in a deficit mode. Why? Because past
administrations and General Assemblies found it much easier to “raid” the Road Fund---some suggest
over $400 million---to balance their overspending in the General Fund.

Medicaid costs continue to escalate at a rate of about 10 percent a year and the state is obligated to
pay 50 percent of those costs. After several years of delays and short-term fixes, Kentucky’s structural
deficit could no longer be ignored or swept aside.

Finally, in 1990’s an approximately $1 billion dollar tax decrease passed.

If Governor Beshear's does not get a consensus he will be forced to cut more than $1 billion from the
budget that will significantly impact local jurisdictions and government programs and benefits.

Governor Beshear will most definitely have to institute a hiring freeze, effectively eliminating unfilled
positions in the Executive Branch and suggesting to Legislative branch to tolerate a reduction of 10% in
their workforce while suggesting to Judicial branch a corresponding workforce reduction and, based on
995 recommendations of Commission On Quality & Efficiency, ask legislature to eliminate 70 statutory
PVA positions saving State an estimated additional $50 million annually.

To make Kentucky financially secure Governor’s plan should slow the growing expenditures on education
and other public programs. In sum, all of the proposed cuts combined trim spending in next two
bienniums.

Even though Kentucky’s economy has been performing well---as rural areas’ growth has become
stagnated---Kentucky is home to a vocationally astute workforce which is one reason Kentucky's
economy has been doing so well. A vocationally astute workforce is critical to our state's economic
vitality, yet middle class families still have to struggle to make their financial ends meet, making it all
the more important state’s vocational school remain accessible to Kentucky’s middle class children.
Recognizing the need to keep vocational training within reach of all Kentuckians, will Beshear’s
legislature create a vocational Investment Fund during the Special Session. This fund will be used to
drive innovation and ensure competitiveness by keeping businesses’ supplied with vocationally trained
workers’ and investing in world class facilities to turn out products and services for world consumption.

To protect our priorities, Beshear Administration must develop a consensus with legislature to enact
significant tax reform to make the state's income tax system fairer by closing corporate loopholes and
providing an income tax cut for middle class families, which will offset a 1 cent sales tax increase that
was also passed.

Beshear’s tax program addresses should include stabilizing Kentucky’s tax income by replacing state
income and sales tax with tax on services eliminating $8.2 billion of state income and sales tax
exemptions, exclusions, deferments, preferential tax rates, deductions, credits:

This plan brings solvency to Kentucky road, general and Medicaid budgets while equalizing Ky taxpayers'
tax burden while providing a competitive, fair, dependable, elasticity to budgets.

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