Official: Kentucky budget shortfall is 'inevitable,' to be 'significantly larger' than $28 million

jbrammer@herald-leader.comJune 10, 2014 

FRANKFORT — State government is taking in less tax revenue than expected, and a budget shortfall for the fiscal year that ends June 30 is "inevitable," state budget director Jane Driskell warned Tuesday.

Driskell said the state's General Fund, which pays for most state programs, and the Road Fund, which pays for road work, would fall short of expectations. She said the magnitude of the shortfall will not be known until early July, but it would be "significantly larger" than $28 million for the General Fund and $11 million for the Road Fund.

Gov. Steve Beshear said his administration is "assessing all options to balance the budget and will take necessary actions to close the gap in early July."

He did not say what actions are under consideration.

House budget chairman Rick Rand, D-Bedford, said he does not think layoffs or a special legislative session will be necessary to deal with the revenue woes.

Beshear, as head of the executive branch, will be responsible for balancing the state budget at the end of the fiscal year, which is required by Kentucky's Constitution.

"The governor is very, very good in handling budget shortfalls, but I'm sure this will be difficult on some agencies," Rand said.

Beshear has cut $1.6 billion from various state budgets since taking office in December 2007. In July 2010, he announced six mandatory, unpaid furlough days for most state employees in order to achieve the savings called for by lawmakers in that year's budget.

Earlier this year, the General Assembly approved a $20.3 billion spending plan for the upcoming two years that included long-awaited pay raises for state employees and schoolteachers, but continued to cut funding for public universities and many state agencies. Some agencies will have lost 41 percent of their funding since the economic recession of 2008.

Driskell reported Tuesday that May's receipts for the General Fund fell 2.1 percent compared to May 2013. Total revenue for the month was $777.3 million, compared to $793.9 million during May 2013.

General Fund receipts grew 1.1 percent during the first 11 months of the fiscal year, but the enacted budget calls for 2.2 percent revenue growth for the entire fiscal year.

To meet the official revenue estimate, receipts must increase 11.7 percent over the final month of the fiscal year.

Driskell said General Fund revenues have underperformed in the past two months.

"Following revenue growth of 6.2 percent and 2.4 percent in February and March, respectively, General Fund receipts have been weak, making a revenue shortfall in FY14 inevitable," she said.

"The most recent internal quarterly revenue forecast predicted we would end the year $27.7 million short of budgeted revenues. Now with April and May receipts below expected levels, we expect a significantly larger shortfall; however we will not know the magnitude until early July."

Driskell said several major revenue sources have underperformed, but the individual income tax, the largest single General Fund revenue source, is the primary reason that revenues are coming in lower than expected.

Individual income taxes have been virtually flat through the first 11 months of the fiscal year, compared to expected growth of 2.4 percent. The tax had grown an average of 5.7 percent during the past three fiscal years.

Among Kentucky's other major revenue sources, coal severance tax collections continue to decline. The losses are due, in large part, to a decline in the amount of coal mined.

Coal receipts fell 8 percent in May and have fallen 14.6 percent through the first 11 months of the fiscal year.

In addition, property tax collections, which were projected to grow 1.9 percent for the year, have declined 2.1 percent year to date.

Among the other major accounts:

  Sales and use tax receipts increased 3.6 percent for the month and have grown 3.5 percent year-to-date.

Corporate income tax receipts decreased $5.6 million but have grown 28.6 percent for the year.

  Cigarette tax receipts declined 0.5 percent in May and have fallen 4.4 percent year-to-date.

Road Fund

Road Fund receipts fell 1.8 percent in May 2014 with collections of $131.4 million. Year-to-date collections have increased 4.9 percent, but the official Road Fund revenue estimate calls for an increase in revenues of 6.1 percent for the fiscal year.

Based on year-to-date tax collections, revenues must grow 18.4 percent in June to meet the estimate, which is not expected. The most recent internal quarterly revenue forecast estimated an $11 million shortfall for the year.

May motor fuels taxes fell 3.6 percent. Motor vehicle usage revenue increased 8.2 percent, and license and privilege receipts fell 11.1 percent.

Jack Brammer: (502) 227-1198. Twitter: @BGPolitics. Blog: Bluegrasspolitics.bloginky.com.

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