Bevin closes $152M budget shortfall and repeats call for tax reform

Gov. Matt Bevin took various financial steps Friday to close a $152.2 million state budget shortfall and used the occasion to repeat his call for updating Kentucky’s tax laws.

The Republican governor said in a news release that the shortfall “validates the need for conservative spending plans, and it dramatically underscores the critical need for fixing Kentucky’s broken pension systems and modernizing the state’s tax code.”

Bevin press secretary Woody Maglinger said the governor “remains committed” to calling state lawmakers into a special session this year to pursue both tax and pension reform.

State Budget Director John Chilton announced earlier this week that Kentucky ended fiscal year 2017 on June 30 with $138.5 million less in revenue than expected in the General Fund, which pays for most state programs.

The Bevin administration said Friday that the state spent about $13.7 million more than appropriated, putting the total General Fund budget shortfall at $152.2 million. That included Bevin’s veto of a part of this year’s budget bill, allowing an additional $5 million in lottery receipts to go to student scholarship and not the General Fund.

To address the shortfall, Bevin signed a budget reduction order Friday that cut about $55.5 million in spending across most state agencies, took about $77.4 million from restricted funds, and transferred about $15.5 million from excess funds.

Those transfers included about $15 million from the Petroleum Underground Storage Tank Fund that removes old gasoline tanks, $2 million from Kentucky Pride Trust Fund that provides grants to clean up illegal dumps, and $100,000 from Education and Workforce Development Secretary Hal Heiner’s restricted fund.

The order did not dip into the state’s rainy day fund for emergencies. It has about $150.5 million.

Programs funded through coal severance revenues are automatically adjusted when receipts fall short of projections. That resulted in a $17 million reduction in money going to the Local Government Economic Assistance Fund, Bevin said.

Also included in Bevin’s steps were one-time savings in Medicaid costs due to the renegotiation of contracts with managed care organizations and lower than expected pharmacy costs.

The legislative branch was cut about $3.5 million and the judicial branch $406,500.

Chilton said the state is “expecting an ongoing challenge with revenues in the next few years.”

“Today’s actions by the governor responsibly preserves the Rainy Day Fund as we prepare for the tight fiscal environment in front of us,” he said.

Final fiscal year 2017 General Fund receipts were 1.3 percent less than the official estimate. If that happens again next year, significant additional spending reductions will be needed to balance the budget, he warned.

This story was originally published July 14, 2017 at 4:43 PM with the headline "Bevin closes $152M budget shortfall and repeats call for tax reform."