Governor's Blog

In the wake of the Education Jobs and Medicaid Assistance Act passed by Congress and signed by President Obama in mid-August, the time for aggressive action is again upon us.

The news is both good and bad.

The good news concerns school funding, and an unanticipated infusion of cash.

The bad news concerns the Medicaid budget, and a new funding hole created when the General Assembly greatly overestimated the federal help coming our way in the Medicaid program.

First, the good news.

Kentucky is getting $134.9 million from the Education Jobs Fund, money that we are sending directly to school districts through our current SEEK formula. It must be used to retain, hire and rehire school personnel -- including teachers -- and to support related expenses that were in jeopardy because of funding pressures.

In short, 100 percent of these funds will be used to support classroom instruction, which has been a high priority of mine throughout this crisis.

Our schools haven’t faced the disastrous cuts inflicted in other states because we acted aggressively early in this financial crisis to both cut state spending and yet protect education spending from those cuts.

Still, as school officials will tell you, these new funds – though one-time in nature – are desperately needed.

I urge our schools to be cautious and conservative with these funds because they will not be available next fiscal year, which promises to be even more challenging from a funding perspective.

Now for the bad news.

If you remember, the two-year budget passed by the House and the Senate earlier this year contained a $238 million assumption: that Congress would pass legislation to increase federal funding for state Medicaid programs set up to provide health care to low-income families, children, pregnant women and the disabled.

My proposed budget did not include this “money-to-come-later” line item. While aware of the possibility of an extended higher Medicaid match rate, I was not confident that it would happen.

Instead, I made tough decisions to cut spending, and I took the bold step of proposing new, recurring revenue in the form of limited expanded gaming.

As we all know, the legislature did not agree with my more conservative approach. And although they also failed to agree on how to balance the budget in the regular session, they came together in special session to pass a budget that counted on the extra $238 million.

Unfortunately, while Congress did indeed increase federal funding, the increase was limited in nature – only about 58 percent of what was assumed.

Instead of $238 million, Kentucky is getting a little more than $137 million.

That creates, in essence, a hole of $100 million in state funding for Kentucky’s Medicaid program. With state funding matched on a roughly 4 to 1 basis by federal funds during this period of enhanced funding, we’re left with a program shortfall of about $470 million.

By June 30, 2011, we have to account for that gap.

Two things will make that especially difficult.

One, because so many people in Kentucky have lost their jobs because of the recession, over the last two fiscal years we have added nearly 3,000 people a month to the Medicaid rolls.

And two, the budget I introduced already contained a series of cost-containment measures – $125 million in state funds alone, or total program reductions of about $584 million.

Our Cabinet for Health and Family Services has announced a first round of such measures, including reducing the unnecessary use of medical services, treatments and ER visits … eliminating the ability of patients to “doctor-shop” in order to obtain unnecessary drugs … managing pharmacy costs more effectively… increasing efforts to collect payments from liable third parties for Medicaid services … stopping the practice of paying hospitals for hospital-acquired infections and errors … recouping payments to providers by partnering with the Department of Revenue … and more aggressively identifying fraud and abuse.

We’re working on the second round of actions right now.

Cutting an additional $470 million in program costs could have a catastrophic impact on our people.

Now, I know that the General Assembly has created two groups to focus on Medicaid issues, one of which was set up in the 2010 regular session. These groups – the Medicaid Oversight and Advisory Committee and the Task Force on Medicaid Cost Containment – have been meeting jointly.

So today I called on those groups to immediately begin working on recommendations to address this budget shortfall. With those recommendations, we can then begin to come together to find solutions to this problem.

And time is urgent.

We are just two months into the fiscal year, but already it appears we will need to address the budget again when the General Assembly comes to town in four months.

Over the fall, my staff and I will be watching state revenues closely … and we will be developing scenarios on how to balance a budget that has been unbalanced by federal action that does not match up with the assumptions made by the General Assembly.

This is a huge challenge, but then we’re used to it.

I hear a lot of people talk about cutting the budget and shrinking government.

Talk is easy. The going gets difficult when it comes time to actually “walk the walk.”

Getting the job done takes more than slogans and political sound bites. It takes courage, commitment and leadership. It takes the willingness to step up and make tough decisions, to be honest about fiscal realities, and to think ahead.

For nearly three years I’ve been leading Kentucky through this tumultuous time by combining fiscal discipline with the willingness to make tough choices such as furloughs and lay-offs of political appointees.

And I’ve worked to put policy above politics.

I will continue to take that approach, and I urge others to do likewise.