Soon after taking office, Beshear ordered $78 million in budget cuts, citing a $434 million projected deficit in the state budget. Republican
Senate President David Williams questioned the legality of the cuts, claiming that the shortfall was only $117.5 million and that $145 million in surplus funds from the previous fiscal year would cover the difference. Beshear countered that the legislature had already authorized $138 million in expenditures from the surplus fund and that his reckoning of the deficit also included $300 million in "additional spending needs". Williams stopped short of filing a legal challenge to the cuts, but warned Beshear that the General Assembly would closely monitor the cuts and override any they disagreed with by passing modifications to the 2006–2008 budget after the commencement of the legislative session in February. Beshear was dealt the first political setback of his term in the special election to fill the state Senate seat of his lieutenant governor, Daniel Mongiardo. Despite a 2-to-1 voter registration advantage in the district for Democratic candidates and the fact that both Beshear and Mongiardo campaigned heavily for Democratic nominee Scott Alexander, Republican Brandon Smith captured the open seat by 401 votes. The loss by Alexander was the most expensive in state legislative history and gave Republicans a 22–15 advantage over Democratic members in the state senate; the chamber also included one
Independent. Beshear expressed surprise that the budget issues consumed so much of the Assembly's time during the session, but admitted that the legislature had become much more independent of the governor than it was when he was a legislator two decades earlier. Beshear's plan included a constitutional amendment allowing 12 casinos to be licensed in the state – seven at each of the state's horse racetracks and five additional free-standing casinos – and a companion bill specifying how the increased revenues would be spent. One proposal, authored by House Speaker Jody Richards, would have guaranteed five casino licenses to the state's racetracks and allowed the other four to go to free-standing casinos. A competing measure, drafted by House
Majority Whip Rob Wilkey and
Speaker Pro Tem Larry Clark, would have allowed all nine licenses to be awarded competitively, with none specifically reserved for racetracks. Following Sims' removal the committee passed the amendment. Besides the state budget, major legislation passed during the session included incentives for homeowners and businesses to utilize energy efficiency measures, anti-bullying legislation, and increased penalties for
animal cruelty. Dissatisfied that the General Assembly had not acted to shore up the state pension system, Beshear called a special legislative session for July 23, 2008, after House and Senate leaders informed him that they had reached an agreement on a plan after the regular legislative session's end. The session lasted five days, the minimum amount of time required to maneuver the bill through the legislative process.
Other matters of 2008 Following the legislative session, Beshear began to address his agenda related to energy production. In April 2008, he announced that he would divide the state's Environmental and Public Protection Cabinet to form a new Energy and Environmental Cabinet. The move essentially reversed the consolidation of Environmental, Public Protection, and Labor Cabinets effected under Beshear's predecessor, Ernie Fletcher. The plan called for expansion of
solar,
wind, and
biomass energy generation, as well as more speculative ventures such as
coal gasification and
carbon capture and sequestration. The state also offered the company $48 million in tax incentives, contingent upon its delivering a promised 4,000 jobs. Construction of the proposed plant stalled, however, when
GE Capital, a primary investor, pulled out of the project. In September 2008, Beshear's administration attempted to seize control of 141 gambling-related
domain names in an attempt to block Kentucky residents from accessing those websites. Beshear claimed the sites were conducting illegal, unregulated gambling operations in the state and providing untaxed competition to the state's horse racing industry. Later that year, a
Franklin County judge ruled that Beshear had the authority to seize the domain names, but the Kentucky Court of Appeals overturned that ruling on appeal. Beshear appealed to the Kentucky Supreme Court, partially because the website owners were being represented by gambling associations and players groups who, Beshear said, had no legal standing in the case. In 2010, the Kentucky Supreme Court agreed with Beshear and ordered the website owners themselves to appear before the court. On December 23, 2015, Franklin County Circuit Court Judge Thomas Wingate ruled in favor of the state and awarded it $870 million in damages. The other party to the case, Amaya Gaming, announced it would appeal the decision.
2009 legislative session During the organizational session of the 2009 General Assembly, House Speaker Jody Richards was ousted by House Democratic members by a three-vote margin in favor of former
Majority Leader and Attorney General Greg Stumbo. Some speculated that Beshear had personally interfered on behalf of Stumbo, a charge he denied. Expanded gambling was again proposed as a possible source of revenue, and a bill to allow
slot machines at the state's racetracks passed the House Licensing and Occupations Committee, but died in the House Appropriations and Revenue Committee. Speaker Stumbo expressed doubt that he had enough votes to pass the measure even if it were brought to the House floor. The chamber allowed Beshear's one veto to stand and adjourned a day early. Democratic representative Jody Richards also asked for an advisory opinion as to whether a constitutional amendment was required to allow
video lottery terminals at the state's racetracks or whether they could be construed as legal under the amendment that allowed a state lottery. Critics charged that Conway had a conflict of interest in the matter because his father was a member of the
Kentucky Horse Racing Commission, but Conway denied that a conflict existed, and the state Executive Branch Ethics Board refused to take a position unless an official request for an investigation was made. Conway subsequently opined in June 2009 that video lottery terminals would be legal if governed by the Kentucky Lottery Corporation and in January 2010 that instant racing would be allowable under the state's
parimutuel betting statutes with a few regulatory changes. In April 2009, Beshear announced a partnership between the University of Kentucky, the University of Louisville, and
Chicago-based Argonne National Laboratory to construct a research facility in Lexington to develop advanced battery technologies that could be used to power electric cars. A week later, the
National Alliance for Advanced Transportation Battery Cell Manufacture announced they would locate a battery manufacturing plant in
Hardin County, citing the nearby research facility as an incentive for choosing Kentucky over competing sites. Beshear called another special legislative session in June 2009 to address another $1 billion shortfall in the state budget. Later, Beshear amended the call to include the economic incentives package that was not approved during the regular session and, in light of Attorney General Conway's opinion on video lottery terminals, a measure to expand gambling in the state by statute. The amended budget and the economic incentives bills both passed in the 10-day session. Shortly after the special session, Beshear named Republican senator Charlie Borders to the state Public Safety Commission.
2010 legislative and special sessions Early in the 2010 legislative session, Beshear presented his biennial budget proposal to the General Assembly. The state projected a $1.5 billion shortfall for the biennium, and Beshear once again proposed to make up for the shortfall with revenue generated from expanded gambling. Days after Beshear presented the proposal, both House Speaker Stumbo and Senate President Williams declared all gambling legislation "dead" for the session, saying there was no political will in either chamber to pass such legislation ahead of the legislative elections in November. Announcing his intent to call a special session to pass a budget and prevent a state government shutdown, Beshear blasted the leadership of both chambers for discarding his budget proposal. Beshear utilized his
line-item veto on 19 items in the budget, claiming they restricted his ability to implement the reduction in executive expenses mandated by the budget. Later in the month, Beshear announced exceptions from the furlough for public safety and mental health care workers. A month later, AFCSME agreed to drop the suit and address the furlough issue through Beshear's Employee Advisory Council.
2011 legislative and special sessions In the lead-up to the 2011 legislative session, state senator and former governor
Julian Carroll declared, "In all the years I've been around the Capitol, I can't recall people expecting so little from a legislative session." Carroll's pessimism was the result of Senate President David Williams' announcement that he would challenge Beshear in the upcoming gubernatorial election, which Carroll believed would disincentivize cooperation between the two leaders. Among the items passed in the legislative session were a bill allowing
optometrists to perform eye surgery (a procedure usually reserved for
ophthalmologists), a ban on the sale of
a psychoactive drug marketed as "bath salts", and a measure allowing community supervision and addiction treatment as jail alternatives for non-violent drug criminals. Measures that did not pass included tougher measures to curb illegal immigration advocated by Williams and raising the legal age for dropping out of high school from sixteen to eighteen, a proposal supported by Beshear. Beshear's plan involved moving $166 million from the second year of the biennial budget to cover the shortfall and cover the costs in the second year through savings achieved by switching to a
managed care plan for Medicaid. Without a plan in place, Beshear estimated that the state would have to cut Medicaid reimbursements to health care providers by 30 percent. Following the session, the
National Education Association honored Beshear with its America's Greatest Education Governor Award for 2011, citing his advocacy for raising the minimum dropout age and his consistent refusal to cut education funding. ==Post-governorship==