State revenues projected to continue to fall

State News

October 13, 2009

By Ronnie Ellis The Richmond Register Tue Oct 13, 2009, 07:19 AM EDT

FRANKFORT — Even after cutting nearly $1 billion from the enacted state budget, revenues are likely to fall as much as $161 million short of that budget’s projections.

That was the news out of a meeting of the Consensus Forecasting Group Tuesday — although the number at this point is only a preliminary figure. The CFG — a group of non-government economists which advises the state on revenue projections — will meet again in December to determine an official forecast for the 2010 General Assembly.

But if revenues have not improved by that time, further cuts will have to be made in the state budget which is constitutionally required to balance.

The group’s chairman, Lawrence Lynch, emeritus professor at Transylvania, said there are signs of economic recovery in the national economy but the state is lagging behind.

He pointed out that Kentucky felt the worst effects of the deep recession later than many other states and likely will see improvement later as well.

The CFG report follows one of the worst single month revenue reports in a long time. Revenues were down nearly 10 percent in September, much of it because of drops in sales taxes.

Greg Harkenrider of the Governor’s Office for Economic Analysis told the CFG “sales taxes are in free fall.”

Gov. Steve Beshear said in a statement the CFG report confirms what his administration has been saying.

“Although there are glimmers of hope in the national economy, the recovery for Kentucky — and many states — will be slow,” said Beshear. “I’ve instructed my staff and our cabinets to evaluate where additional adjustments can be made and efficiencies found throughout state government in the coming months, without compromising our priorities or the provision of basic services.”

Lynch does see improvement down the road. He said he expects to see growth — over this year’s revenues — to begin by January while noting that comparison will be with a down revenue year in 2009. But he and Eastern Kentucky University economics professor Frank O’Connor both said the economy must at some time improve

“I mean eventually it will turn around but when is eventually,” Lynch said.

The CFG predicted revenue in the General Fund will be $8.135 billion this year but will grow by 2.2 percent in fiscal year 2010-2011 to $8.316 billion. But that is still less than what the CFG was predicting for the next fiscal year in May of this year. Growth in the following fiscal year, 2011, is predicted to be 3.7 percent at around $8.6 billion.

Terry Brooks, Executive Director of Kentucky Youth Advocates, used the gloomy revenue projections to call for comprehensive tax reform.

“There are no more budget silver bullets like the rainy day fund or new (federal) stimulus dollars,” Brooks said. “We can pursue a ‘tighten-the-belt-even-more’ strategy that will strangle the prosperity potential for both families and the state.”

Or, said Brooks, elected leaders “can demonstrate that rare political commodity — courage — and tackle comprehensive tax reform.”

But Lynch said tax reform is not likely to solve the problem even if it could be put in place before the recession ends. A universal sales tax, he said, would still produce falling revenues because sales taxes continue to fall with reduced economic activity.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. He may be contacted by email at rellis@cnhi.com. The Richmond Register is a CNHI newspaper.

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