Economists predict modest growth for state government revenue in coming years

bmusgrave@herald-leader.comAugust 15, 2013 

A view of the state capitol building from the Frankfort Cemetery, Dec. 2004.

JANET WORNE | STAFF FILE PHOTO

FRANKFORT — A group of independent economists predicted modest growth in Kentucky General Fund revenue over the next five years after spending more than three hours assessing Kentucky's economy.

The Consensus Forecasting Group slightly lowered their previous $9.5 billion revenue projection for the current fiscal year, which began in July, by $4.5 million.

They forecast modest growth for the following fiscal years — 2.7 percent for FY 2015 and 2.8 percent for FY 2016. That translates to roughly $9.7 billion in revenue for 2015, or a $259 million increase from fiscal year 2014.

The projections the group made Thursday are preliminary figures intended for planning purposes. The seven-member, nonpartisan group will meet again in October, and then release its final revenue projections in December.

Lawmakers and Gov. Steve Beshear will use those projections in January 2014 to craft the next two-year state budget.

Members of the group were unanimous in their decision to go with a slightly cautious revenue projection given the uncertainty in the overall economy and uneven collections in recent years of key taxes.

Sales taxes, which make up roughly $3 billion of Kentucky's revenue, have declined three of the last five years. Coal severance taxes plummeted by 22 percent in 2013, largely because of a steep drop in the amount of coal mined in Kentucky. But some corporate taxes have performed well, including bank franchise taxes.

The group ultimately decided revenue growth of less than 3 percent for each of the next five years was the most likely economic scenario.

"Three percent growth is not unreasonable on average," said Frank O'Connor, a member of the Consensus Forecasting Group and a professor of economics at Eastern Kentucky University.

Meanwhile, state economists said a decline in gasoline prices will likely mean less revenue for the state's Road Fund, which is used to pay for transportation projects.

The Consensus Forecasting Group revised its current-year projection for the Road Fund down by $28.4 million. For the next fiscal year, it projected a decline of 3.1 percent, or $47.9 million, to $1.49 billion.

A tax change lawmakers approved earlier this year also will take a toll on the Road Fund.

As part of a compromise bill to pay for increased pension costs, legislators enacted a tax credit for people who trade in used cars for new ones. The tax credit will cost the state about $34 million per year beginning in fiscal year 2015.

Beth Musgrave: (502) 875-3793. Twitter: @BGPolitics. Blog: bluegrasspolitics.bloginky.com

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