By Charles Wolfe
The Associated Press

FRANKFORT, Ky. - Gov. Ernie Fletcher, in his first State of the Commonwealth address, said Tuesday night that Kentucky faces as daunting a challenge as any in modern times. To meet it, he asked the General Assembly to overhaul the tax code.

Fletcher, the first Republican elected since 1967, said he inherited "a government with problems at its very core."

"From the organization of the budget to the structure of the tax code to the culture of state government itself, we will find a better way," Fletcher told a joint session of the Kentucky House and Senate. The 18 1/2-minute speech was beamed statewide on Kentucky Educational Television.

Fletcher said he had "inherited a budget crisis, not only between revenue and spending but also in structure." The latter apparently was a reference to what his budget office has described as one of the state's chronic habits - "recurring reliance on nonrecurring revenue."

Overhauling the tax code, which Fletcher calls "tax modernization," was one of his campaign promises. The subject has been studiously avoided by most members of the General Assembly since the 2004 session began a week ago.

Rep. Harry Moberly, chairman of the powerful House appropriations committee, said there was "a lot of apprehension in the House" on the subject. Speaker Jody Richards said Fletcher would have to build consensus for a tax bill in the House, then "propose it, promote it, push it" to get it passed.

But one of Fletcher's fellow Republicans, Senate President David Williams, who was publicly dubious about the subject as the 2004 session was about to begin, said he was less so now.

"I think chances are better than two days ago or two weeks ago that he's going to be able to pull this off," Williams, of Burkesville, said in a news conference following the speech.

Richards, D-Bowling Green, said Fletcher would have a hard time getting a tax bill through the Senate because so many of its members have signed a no-new-taxes pledge.

Fletcher, who also served a term in the state House, acknowledged that 2004 is an election year "and the easy answer is to put it off. But I ask you to join me to accomplish this long-overdue goal."

Fletcher has said he wants a comprehensive rewriting of the tax code - not isolated tax hikes or cuts - that would not net any extra money for the General Fund at the outset. In time, though, revenues would grow with the economy, reducing the average burden per taxpayer, he said.

Fletcher is being urged by some to raise the state tax on cigarettes. He has resisted the suggestion, though he said he would consider it as part of a comprehensive plan.

After the speech, Fletcher said he has "some structure" in mind for such a plan but needs time to marshal support.

On other fronts, Fletcher said the state's larger problems include an epidemic of drug abuse - homemade methamphetamine and prescription painkillers - that is "destroying our communities and our young people."

Lt. Gov. Steve Pence, a former U.S. attorney who doubles as his justice secretary, will spearhead the administration's efforts against drug crime, Fletcher said.

"We must move beyond just being tough on crime to being effective on crime, not only for the sake of those caught in the jaws of addiction but also for the taxpayer who foots the bill," Fletcher said.

Meantime, Fletcher said, health-care costs are "growing out of control" and Medicaid, the state-federal health insurance program for the poor and disabled, "is failing to meet its obligations, especially to seniors in long-term care."

Fletcher, who is a physician, said his goals included a revamping of Medicaid, putting more emphasis on preventive medicine and good-health education.

He also made a pitch for medical malpractice legislation. Earlier Tuesday, he testified to a Senate committee in support of a proposed constitutional amendment aimed at eventually rolling back jury awards in malpractice cases.

Fletcher also made a campaign promise not to raise taxes, and he said he would present a budget in two weeks that is balanced without higher taxes.

He ordered spending cuts to help plug a $302 million shortfall in the current-year budget. He also plans to take $45 million from the state's universities to help build a $100 million beginning balance for the next fiscal year, which begins July 1.

Fletcher said he had asked the universities, along with the rest of state government, "to make some sacrifices in the short term."