FRANKFORT — Citing an “unprecedented” budget shortfall facing the state over the next two years, Gov. Steve Beshear all but ruled out new spending and new programs in the coming budget.

“There is going to be a lot of pain in this next budget,” Beshear said. “There is no way to avoid that.”

He and Budget Director Mary Lassiter said the Consensus Forecasting Group, a collection of economists who forecast state revenues, has projected a dip in state revenues which will leave the state about $500 million short next year of current year spending. On top of that, the state faces about a $430 million short fall in the current year, they said. That includes $166 million in additional funding requested by some government agencies, principally Medicaid, corrections and state police.

To address the current year shortfall, Beshear is transferring $145 million in carryover from the previous fiscal year to this year’s budget, enacting a 3 percent cut in government agency spending which will net about $78 million in savings.

Spared from those cuts are the funding formula for public schools, teacher salaries, Medicaid and such items as spending for Commonwealth Attorneys. The administration has also found $42 million in “unbudgeted excess funds” which will be applied to the deficit.

Still, that leaves the budget $166 million short, the amount requested by government agencies such as Medicaid, the Department of Corrections and the Kentucky State Police. Beshear said he will present an amended budget proposal to lawmakers on Jan. 29 when he makes his budget proposal for the next two years. The amended budget will propose spending cuts in some areas which can then be transferred to cover the $166 million.

Lassiter said the amended budget proposal is “a very normal action. Every governor has had to make budget reductions.”

Earlier in the day, Senate President David Williams, R-Burkesville, said after meeting with Beshear that there is no exceptional budget crisis different from those faced by previous incoming governors.

Williams conceded the revenue forecasts present a more difficult budget scenario over the next two years, but he said a “crisis” would mean the state is unable to meet its current obligations. And, Williams said, given the surplus from last year, the rainy day fund, and the ability to make cuts in spending, the state can meet its obligations in the current budget.

And, he noted, both of the previous governors, Republican Ernie Fletcher and Democrat Paul Patton, also had to enact 3 percent budget reductions.

But the gap between current spending and projected revenues next year is the real problem, Lassiter and Beshear said.

That’s why, Beshear said, he will not dip into the $232 million rainy day fund to deal with this year’s deficit. The state’s General Fund currently is budgeted to spend $9.4 billion (the entire state budget is just over $17 billion). But General Fund revenues for next year are projected at only $8.87 billion, leaving about a $500 million gap.

“That is an unprecented gap,” Beshear said. “There is no new money. Anyone who wants to spend new money will have to go and get it from something else.”

“Looking at any new program is a very, very difficult thing to do right now,” Beshear said later.

He declined to say if teacher raises promised for the next two years – but not yet appropriated – in order to raise teacher salaries to the average of the surrounding seven states can be funded in the next budget – “We’re still working on that,” he said. He also said he will consider sentencing reforms and drug treatment programs in light of burgeoning prison and jail populations, but he again declined to commit himself to any specific position.

While he said the state will begin reducing the state workforce through attrition, rather than layoffs, he declined to say unequivocally there will be no layoffs. At one point, he said, “Everything’s got to be on the table.”

Everything but taxes. He said he will not consider an increase in the cigarette tax.

Asked if he might be exaggerating the budget difficulty to strengthen his case for a constitutional amendment to allow casino gambling in Kentucky, Beshear said no.

“Just look at the numbers,” Beshear said, pointing to a chart of bar graphs showing the difference between spending in the present budget and revenue forecasts for each of the next two years. “The numbers are what they are whether we pass casino gambling or not.”

Even if this session of the General Assembly approved such an amendment and voters passed it, the state wouldn’t begin receiving revenue from taxes on casino gambling until 2009.

“I am determined to address this problem with the resources we have.” Beshear said.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at Rellis@cnhi.com

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