ASHLAND — Likening the state of Kentucky’s budget woes to a leaking bucket, the president of the Kentucky Chamber of Commerce told a gathering of local business and government leaders Thursday that the state’s largest organization representing business supports fixing the leaks instead of adding more water to the bucket.

“For business, the No. 1 issue in Kentucky is the economy,” said David Adkisson. president and CEO of the state chamber. “For government, the biggest issue is money and the deficit. The two issues are closely related.”

During his talk at the annual legislative luncheon of the Ashland Alliance at the Ashland Plaza Hotel, Adkisson said state government is not to blame for Kentucky’s revenue woes. “Kentucky is in the ditch because the nation is in the ditch,” he said. “We didn’t cause this problem but we have to deal with it.”

Kentucky’s overall tax receipts for the fiscal year that ended June 30 were down 2.7 percent from the previous year. That’s about the same as the decline of the gross national product during the same period, he said.

Kentucky has not had a major tax increase since the approval of the Kentucky Education Reform Act in 1990, a law the Chamber strongly supported including the tax hikes necessary to fund it. Since then, Kentucky’s revenue has kept pace with the gross state product, he said.

“Despite all the shortcomings of our tax system in Kentucky — and the Chamber supports changes in it — it has at least kept pace with income in the state,” Adkisson said.

However, there are three major state expenditures that are increasing so rapidly that they are “unsustainable,” the chamber executive said. They are the cost of employee health care insurance, which has risen by 174 percent since 2000; the cost of Medicaid, which has increased by 67 percent in the last decade; and the cost of prisons, which has risen 44 percent since 2000.

Adkisson called employee health care benefits, Medicaid and prisons the “three leaks in the state’s budget bucket” that must the addressed before they bankrupt the state.

The state chamber is proposing that the 2010 General Assembly require that each state and public school employee pay $50 per month toward the cost of their individual health insurance. Currently, state employees and teachers pay nothing for their health insurance, although they must pay a portion of the cost of the health insurance for members of their families.

The state of Kentucky pays 97 percent of the total health insurance costs of state and public school employees and their families, said Adkisson. In contrast, private businesses in the Kentucky pay about 80 percent of the costs of health insurance for their employees, Adkisson said, “and that’s only for the 60 percent of employers in Kentucky who offer health insurance for their employees. Forty percent does not even provide insurance coverage for employees.”

Jim Cantrell, chairman of the Ashland Alliance, later told the group that the argument for the excellent health and retirement benefits given state and school employees used to be to help compensate for their below-average salaries. However, the average salary for state and school employees now is $38,000 a year, while non-government workers in Kentucky now earn an average of $36,000 a year.

The $50-per-month cost each employee would pay for their health insurance would save state government the current cost of insuring 3,500 employees, Adkisson said.

Adkisson said the state chamber supports amending the state’s persistent felony offender law to reduce the number of state inmates serving mandatory sentences for relatively minor crimes.

“Legislators are afraid of being seen as soft on crime but, as one University of Kentucky law professor said, the state need to distinguish between who we are afraid of and who we are just mad at,” Adkisson said.

In an effort to reduce prison costs, the state needs to reclassify its offenses, increase funding for drug treatment for addicted inmates since drugs are the major cause of crimes, and privatize more of its prisons, said Adkisson, a former major of Owensboro.

To reduce its soaring Medicaid costs, Kentucky needs to expand managed care for Medicaid recipients and incorporate more wellness incentives.

Kentucky needs to create a wellness tax credit and offer incentives for people to stop smoking, lose weight and take other steps to improve their health, Adkisson said.

Adkisson said Kentucky is the only state where the right to smoke is considered a civil right equal to rights on race and gender. That needs to change, he said, adding that the state chamber supports ordinances that restrict smoking and wishes more cities and counties would enact them.

Adkisson emphasized that the Kentucky Chamber of Commerce is separate from the Ashland Alliance and other local chambers in the state. As a result, the legislative goals of local chambers may differ from those of the state chamber, he said.

For example, on the issue of gambling, the views of those in Bowling Green are much different than those in downtown Louisville, Adkisson said.

Adkisson admitted that the chamber’s legislative agenda is short on specifics, but he said the chamber is certain to take positions on specific bills debated during the 2010 General Assembly. However, he said the chamber will remain adamant in its belief that the upcoming session must take the first steps toward reducing the costs of health care benefits, Medicaid and prisons.

JOHN CANNON can be reached at jcannon@dailyindependent.com or at (606) 326-2649.