With Kentucky’s economy slowing to a trickle during the coronavirus pandemic, the state’s already cash-strapped coffers and services are going to take a big hit.
The outbreak presents a massive challenge, both for Kentuckians who rely on state programs and for lawmakers currently trying to finalize a two-year state budget to possibly pass out of the legislature on Thursday.
Kentucky’s two-year revenue growth was already predicted to be lackluster before the pandemic and the state is facing several financial pressures from the growing prison population, Medicaid costs and struggling pension systems, among others.
Now lawmakers will have to wrangle with a crisis that not only demands more public health funding to fight the outbreak but also drains the treasury of much-need tax revenue.
Jason Bailey is the executive director of the Kentucky Center for Economic Policy, a progressive think-tank. He says the state’s income and sales taxes — which account for about 75% of state revenues — are already taking a hit as people stop spending money or lose jobs.
“People are not spending money at restaurants, they’re not going to stores to spend money, nobody’s buying a new car right now. There’s all these things that people normally spend money on that they’ll just stop or cut back dramatically,” Bailey said.
Kentucky’s “rainy day fund” — a savings account intended for emergencies — is one of the lowest in the nation when compared to the amount of money the state spends each year.
Though state lawmakers have put more money in to the account in recent years, it still only accounts for about four days’ worth of operating costs, according to Pew Charitable Trusts.
Meanwhile local health departments, the front line of Kentucky’s coronavirus response, have suffered years of budget cuts and massive increases in their pension costs, leading to a drop in staffing around the state.
Before coronavirus, Democratic Gov. Andy Beshear heralded a budget proposal that promised raises for teachers and state employees, hiring more social workers and an end to years of cuts to Kentucky’s higher education institutions.
Though many of his proposals were sure to change when the Republican-led legislature put together its own versions of the budget, Beshear recognized in a recent press conference that during the coronavirus epidemic he has had put his agenda on hold.
“I was very proud to put forth a budget where for the first time in twelve years we were making real investments,” Beshear said. “We are at the point where we’re going to have to get through this coronavirus and see what investments we can make at that point, but we are at a different time.”
As they gather this week to try and finalize a two-year budget, Republican leaders of the legislature have called for a revision to official revenue estimates — the numbers that budget writers use to project how much money the state has to spend over the next two years.
Beshear said recently that the revised estimates would do little good while the economy is in flux.
“At this point, it would just be a guess and I don’t think anybody can predict where our economy will be as we come out of this,” Beshear said.
On Monday, Republican Senate President Robert Stivers said that budget writers need an updated revenue estimate in order to finalize the budget, which they are trying to pass by Thursday’s planned meeting of the full legislature.
“Those revenues will not be the same or even close to the same that they were projected,” Stivers said. “We know we are going to go into a downturn in our economy.”
Another issue lawmakers will consider when they reconvene on Thursday is whether to pass Senate Bill 150, a coronavirus relief bill that would allow workers to still receive benefits if they are shifted from full to part-time, expand staffing at the coronavirus hotline and expand telehealth to all heath care providers.
It would also give the governor the power to change some eligibility requirements for unemployment benefits, like waiving the seven-day waiting period and alter the look-back period used to determine how much money someone will receive.
Beshear has said he wants to extend unemployment benefits to independent contractors and self-employed workers, who don’t currently receive them.
On Sunday, Beshear said there had been 30 times as many applications for unemployment benefits this year as there had been by this time in 2019.
According to a recent Kentucky Center for Investigative Reporting article, the U.S. Department of Labor data show that Kentucky’s unemployment trust fund is 57 percent funded — a little more than half of the money needed to make the maximum amount of payments. Only nine states have a lower solvency rate.
States can borrow money from the federal government to pay unemployment once their funds are depleted.