It won't be a merry Christmas week in Frankfort

On Monday, the Consensus Forecasting Group will release its latest projection of the state's deficit for the next two-year budget cycle. While a deficit of $1.4 billion has been widely speculated, expect it to be much more than that. I suspect a number higher than even that daunting figure is why House Speaker Greg Stumbo told the media following a budget briefing meeting last week that he was now open to tax increases to offset possible drastic cuts to education.

It's shaping up to be a Frankfort Christmas week that only a Grinch could enjoy. Legislators will return to Frankfort on January 5th for a General Assembly that will likely give a whole new meaning to long session. Crafting a new two-year budget always dwarfs nearly every other topic in the even-numbered years. Throw the prospect of tax increases vs. painful education cuts into the equation and it becomes rare theatre; it's the type of situation that is surely to give lawmakers and their thirst for re-election nightmares.

Kentucky is nearing a situation where a few "insignificant" taxes increases are not nearly enough. Indeed, the one "low hanging fruit" I hear most often mentioned now is to possibly raise the state's current 6% sales tax to 7% or more. Each 1% increase raises approximately $500 million. It's considered low hanging fruit because Indiana's sales tax is 7% and Tennessee's is more than 9%.

The last time lawmakers raised the state sales tax was in 1990 when a court ruling led to the KERA education reforms and the need to raise significant revenues for more equitable school funding statewide. Speaker Stumbo went on to tell the media last week that very few legislators were defeated in their re-election bids after the 1990 sales tax increase. What he didn't mention was that most legislators also funded many capital projects back in their home district during the 1990 session to "ease the pain" of that sales tax increase in voters' minds. It apparently worked.

In 2010, however, there might not be enough revenues for schools' operating budgets and projects. It's going to be a long session.

What's happening to the middle?

Independents. Middle ground. Compromise. These concepts are lost in national politics today. Why is most of the political "energy" we're seeing today go to the extremes? On the far right, Tea party types are causing fits for the traditional Republican party. On the left, extreme ideas on display in Congress today like environmentalism/cap and trade, increased regulation on business and more government involvement in healthcare leave a lot of us wishing for more middle ground.

Other than about a six-month window from about May to November each presidential election year, those middle ground ideas are forgotten. Most of us live in the "middle" every day. We know that a little "give-n-take" with our spouse, with our families and in the workplace makes the world go around. The middle is the grease of our lives. The middle gets things done.

How about some middle on the environment? If we accept that we need to move away from coal-fired electricity, let's find the middle on nuclear power. The environmentalists need to quit using the courts and other measures to stop progress on nuclear power plants. Incentivize more "green" power production and technology but let's not criminalize coal and double the midwest's electric rates in the process.

How about some middle ground on healthcare? Force health insurance companies to cover some of the unhealthy population with reasonable rates but let them compete across state lines. Let's curtail unnecessary tests and related costs and cap medical malpractice awards.

The middle is where politics and a whole lot more gets accomplished.

Environmental bulls eye squarely on Kentucky

Wow, just when you think there might be enough U.S. senators to realize that the proposed cap and trade issue is a bad idea, the EPA declares carbon dioxide a health hazard and says it will regulate its emissions. That thud you hear is a collective groan from economic development leaders in Kentucky.

Earlier this year, the U.S. House barely passed the controversial cap and trade legislation that would have the effect of raising electric rates for states like Kentucky, where more than 90% of electricity is generated by the Commonwealth's abundance of coal. We've enjoyed electric rates that are about half of most of the U.S. and that clearly has been our state's biggest asset to luring and keeping manufacturing. Today, smelters in the Owensboro area produce nearly 20% of the world's aluminum. Aluminum jobs are high-paying with good benefits and also have a high job multiplier effect. If electric rates go up dramatically, those plants are in jeopardy.

At the same time, the EPA is starting to clamp down on sewer agencies like that in Owensboro where sewage and storm water are in the same pipes. Many communities around the country have decades-old combined systems, and the EPA wants sewage and storm water separated. That's another idea—like clean air—that sounds good but costs millions and millions to accomplish. Owensboro's sewer agency has been working with the EPA for a long time on a plan to mitigate this, and I'm told that EPA officials have essentially told the agency that because local sewer rates are much less than the national average, there is "room for rates to grow."

Room for rates to grow? Try telling that to a citizenry that is struggling to pay their current bills, perhaps scared of a losing their job or facing the expense of sending a child to college. Growing utility bills are also no solution for struggling business and industry slowed by the economy. Kentucky stands to be a big overall loser in the name of environmental stewardship.