Gov. Matt Bevin’s top budget aide on Monday said spending cuts are necessary to start improving the status of the state’s ailing pension systems.
Under the governor’s proposed budget, most state agencies will be cut by 4.5 percent for the rest of the current fiscal year and 9 percent over the next two fiscal years.
State Budget Director John Chilton told state legislators that the cuts are better than increasing taxes, borrowing money or ignoring the growing financial liability in the state pension systems.
“Are these severe? Yeah,” he said of the proposed cuts. “But the amount of liability that needs to be paid at some point is huge.”
Combined, the pension systems for state employees and teachers are short about $30 billion in the money the state needs to send out checks to current and future retirees.
The Bevin administration says that the cuts will free up about $650 million in spending. Bevin has instructed cabinet secretaries to ultimately decide how to administer the cuts.
State university presidents have warned that cuts will force the institutions to decide between increasing tuition rates and discontinuing some services. Kentucky State University President Raymond Burse said that the cuts could force the school to shut its doors.
When asked if universities should be alarmed by the cuts, Chilton said they should be.
“I suppose they should be alarmed and take action to adjust their expense configuration in order to accommodate that lower amount that’s coming from the state,” Chilton said.
Bevin exempted several programs from the cuts, including student financial aid, the entire state Medicaid system and the SEEK funding formula for primary and secondary education.
Sen. Gerald Neal, a Louisville Democrat, said that before considering cuts, lawmakers need to seriously consider tax reform and searching for new forms of revenue.
“We have not taken action historically, effectively with tax reform which should be our primary concern in terms of laying a foundation for us to project into the future and at the same time deal with what we didn’t do,” Neal said.
Many have blamed the current pension crisis on the legislature for inadequately funding and diverting funds from the pension systems.
Lawmakers say that they funded the systems based on recommendations from the governor’s office over the years.
Rep. Brian Linder, a Republican from Dry Ridge, praised the cuts, comparing Bevin’s budget strategy to paying off a credit card.
“If you may the minimum every month, you’ll never dig out of the hole. You’ve got to pay the minimum plus add some money,” Linder said.