Matt Bevin, who is Kentucky’s 62nd governor — and only the third Republican in 48 years — is leading a state that presents a mixed bag.
Kentucky’s per capita growth in gross domestic product outpaced our six surrounding states from 2004 to 2013, according to a recent report by the state Chamber of Commerce. But that growth in wealth is not showing up in Kentuckians’ incomes or, as Bevin is discovering, state revenue.
The new governor’s people were shocked (shocked!) to discover that projected state revenue falls short of the state’s projected needs. While it is customary for incoming governors to grouse about the bare budgetary cupboard, this trend of need far outpacing revenue has been the new normal in Kentucky for so long that it can no longer be called new, it’s just normal.
It’s why budget-writers have vacuumed up every penny in fee-based funds, including the money that motorists pay for nature license plates which is supposed to support new nature preserves but instead is propping up the General Fund.
It’s why Kentucky has been relentlessly shifting the cost of higher education onto students and their families and has continued to cut colleges and universities even post-recession after other states resumed investing in higher education.
It’s why Kentucky’s public pensions are so perilously underfunded that rating agencies have downgraded Kentucky, making it costlier for the state to borrow money to bond roads, bridges and school buildings.
It’s why Bevin will have to take on reforming Kentucky’s outmoded tax system – a system that fails to capture growth in the economy and, as the commentary at the bottom of the page explains, exempts more in potential revenue through breaks and loopholes than it takes in.
But, wait, you say, Bevin rose from the anti-tax Tea Party. His mandate is thin. His 511,374 votes were fewer than that of his predecessor, Steve Beshear, in 2007 by 108,178 and fewer than losing U.S. Senate candidate Alison Lundergan Grimes by 73,324 in 2014. Considering all that, how can he possibly increase state revenues through tax reform?
The more relevant question is: How can he govern without tax reform?
Bevin’s plan to move new public employees out of the state’s defined benefits plans into 401k-style defined contributions plans would cost even more initially than beefing up existing plans because new employees would no longer be paying into the old plans.
Bevin has promised to economize by rolling back expansions of health care access before the state is required to pick up part of the cost in 2017. But he will find it impossible to deliver on his economic promises without remedying the high rates of disease, disability and addiction. As the Chamber report says, “The health of Kentucky citizens remains a huge competitive disadvantage.” Major cuts in health care will only deepen that disadvantage.
The Chamber also points out that while Kentucky workers are competing fiercely for low-wage jobs, thus driving down wages, the state’s employers report a shortage of qualified candidates for higher-paying jobs.
Perhaps that helps explain why median household income in Kentucky declined by 9.5 percent from 2004 to 2013, compared with a 5.4 percent decline nationally. Income inequality is worse here than nationally while increases in college-going rates among young Kentuckians are stalling out.
As coal severance tax receipts continue to decline with the coal industry, the mountains must make the best use possible of that money to seed new jobs and economic activity. Bevin should move quickly to support SOAR, the bipartisan initiative launched by Beshear and Republican U.S. Rep. Hal Rogers, to plan for Eastern Kentucky’s redevelopment.
Bevin faces huge challenges and, like other governors, has only a few weeks to put together a two-year budget. That process will go better if he works in partnership with both Democrats and Republicans in the legislature.
A year ago, no one would have dreamed that Bevin, who was coming off a drubbing by Sen. Mitch McConnell in the Republican Senate primary, would stand on the Capitol steps to take the oath of office. Bevin pulled off an extraordinary political feat by winning the governorship.
We wish him well as he faces the much tougher challenge of governing.