Revenue forecasts still call for major shortfall next two years

State News

December 22, 2009

By Ronnie Ellis The Richmond Register Tue Dec 22, 2009, 08:20 AM EST

FRANKFORT — Even when it is good news on the fiscal front in Frankfort, it still is bad news.

On Monday, the Consensus Forecast Group, a group of independent economists who predict state revenues, revised their estimates for the current and next two fiscal years up slightly. They even saw some growth in the next two-year budget period which begins next July 1.

The problem is the state is already spending more money than even the improved revenue estimates produce — about $9.09 billion in its general fund. That is because of federal stimulus funding and one-time funds lawmakers utilized to balance the budget for the current biennium, which ends June 30, as well as more optimistic revenue estimates when the current budget was last revised.

But Larry Lynch, the CFG chairman, said there are signs the economy is improving and they think revenues may grow in the first year of the 2011-2012 budget cycle by 3.6 percent.

“The 3.6 percent is not terribly optimistic, especially coming out of a recession, but you have to get a bump out of a recession,” Lynch said.

The CFG predicts revenues in fiscal year 2011 of just more than $8.49 billion and more than $8.8 billion in the second year, a 3.7 percent increase. Those numbers are better than October estimates. They also revised downward the shortfall for the current fiscal year 2010 which ends June 30 – to just under $100 million. In October, the CFG preliminary estimates called for a $161 million shortfall in the current year.

That prompted Gov. Steve Beshear to ask government agencies to prepare for a 6 percent cut in the current fiscal year, but the new figures will lessen the hit at least a little for those agencies.

The next two years are another matter. The state is spending about $9.09 billion – relying heavily on federal stimulus money which will run out in December of 2010 – after reducing the budget by $800 million over the past two years. But that still is more than $890 million more than either the 2011 or 2012 CFG revenue estimates. Earlier forecasts placed the two-year shortfall at more than $1 billion.

Just to keep spending at its present levels, the state will have to find $600 million in the first year and $290 million in the second on top of the projected revenues. Kentucky still has federal stimulus money available for that year which should cover at least part – but not all – of the $600 million hole. But that money runs out after December 2010, and will not be available for the final 18 months of the two-year budget.

Beshear said the next budget will be “the most difficult Kentucky has faced in modern times.” He didn’t say how he will propose dealing with the bleak budget picture when he presents his budget to the General Assembly on Jan. 19.

Lynch, during the CFG deliberations Monday, noted that Kentucky’s economy tends to lag behind the national trend – it tends to feel the effects of recession later than the rest of the nation but then tends to be slower recovering. But he said the group sees signs of improvement.

“We all feel more optimistic now,” Lynch said after the meeting. “The national economy seems to be looking a little bit better and that seems to be translating to Kentucky.”

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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