The Associated Press

FRANKFORT - Releasing hundreds of felons as an austerity measure was only the beginning unless the state gets more money, Gov. Paul Patton told the General Assembly on Thursday.

"This is the worst fiscal crisis in Kentucky, in Kentucky government, since World War II," Mr. Patton said in his final State of the Commonwealth address.

The state faces a shortfall of $509 million by the end of fiscal 2004.

"Our present fiscal crisis calls into question our continued ability to execute our existing public policy because, to be very plain about it, we don't have enough money," Mr. Patton said.

To keep the Department of Corrections within budget, Mr. Patton last month ordered the release of 576 low-level felons from county jails.

Until then, "we had been able to live within existing resources without making any meaningful cuts to essential government services that you had mandated us to provide. We can no longer do that," Mr. Patton told legislators.

He said Kentuckians face a fundamental decision: Raise more money or reduce commitments in several areas, including education, public safety and social services.

Mr. Patton did not propose a specific course - raising taxes, for example, or legalizing casino games, as some in the legislature have advocated. He said the House and Senate budget committees should hold joint hearings to inform the public of the effects of future spending cuts. He said there should be an equally public debate about new sources of money.

Sprinkled throughout his speech were references to earlier initiatives that Mr. Patton said resulted from bipartisan cooperation between both legislative chambers and his administration.

Whatever is done now must be bipartisan, too, he said. "Each chamber must be involved. Each political caucus of each chamber must be involved," Mr. Patton said, an apparent reference to the Senate's Republican majority.

Republican leaders, who expect Mr. Patton and his fellow Democrats in the House to propose raising taxes, this week repeatedly questioned whether enough has been done to cut government spending.

To counter, Mr. Patton said that his administration had significantly increased spending in only three areas - criminal justice, Medicaid and education. Meanwhile, he said, spending in the rest of state government has increased less than inflation - 14 percent over seven years. He also said the state has 1,166 fewer employees than when he took office seven years ago.

Mr. Patton reminded legislators that they had enacted tax cuts - on personal income, pensions and health care providers, among others - that will total almost $500 million in the next fiscal year.

"Our administration has done all we know to do during these last two years of national economic slowdown to keep the commitments we've made through past legislative actions," he said.

The General Assembly, which began a 30-day, off-year session Tuesday, failed to pass a budget during its 2002 session and a subsequent special session. The two chambers had a standoff over partial public funding of gubernatorial campaigns. The Senate's version of a budget eliminated it. House Democrats insisted on keeping it. Mr. Patton has been running state government on his own "spending plan" since July 1.

Mr. Patton said the budget he proposed last year must be the starting point of negotiations this year.