Legislators’ revenue bill misses mark by $50 million, says state budget director

The two-year state budget lawmakers have sent to Gov. Matt Bevin for his consideration is not balanced because money generated by a revenue bill will be significantly lower than anticipated, the state budget director said.

In a two-page letter sent Friday to Bevin and obtained by the Lexington Herald-Leader, state budget director John Chilton said it is “a great concern” that the revenue measure prepared by lawmakers earlier this week has a shortfall of at least $50 million.

Bevin’s communications office had no comment on the letter. He is now deciding whether to veto the measure, let it become law without his signature or sign it into law. State lawmakers are to return to Frankfort April 13 and 14 to consider overriding any vetoes.

It is not certain how legislators will deal with Chilton’s letter.

Chilton said the legislature’s fiscal analysis of the budget bill, House Bill 366, indicates a net increase in revenue of $234 million and $244 million in the first and second years of the biennium.

But his office’s analysis, said Chilton, indicates that annual revenue increases are likely to be at least $25 million less in each year, a shortfall of at least $50 million over the biennium.

Chilton said his staff based their projections on Department of Revenue’s data from actual returns filed by Kentucky taxpayers.

“We have not completely sorted out the differences between our calculations and the Legislative Research Commission’s calculations,” he said.

“As we continue our analysis and discussions with the LRC staff, we may become aware of other concerns about the scoring and implementation of HB 366.”

The budget director said it was important that his office and the LRC be comfortable on revenue projections when a group of independent economists known as the Consensus Forecasting Group meets to consider the effect of tax changes on future revenues.

“In any case, we now believe that the biennial budget will be out of balance as the revenue generated by HB 366 will be significantly lower than anticipated,” Chilton said.

HB 366 would generate about $500 million in additional money for the state over the next two fiscal years. It creates a flat 5 percent tax rate for personal and corporate income taxes and expands the state’s 6 percent sales tax to 17 services. It also raises the state tax on a pack of cigarettes by 50 cents.

Chilton said his office began evaluating the legislature’s revenue bill on April 2, the same day both the state House and Senate approved the measure.

“As you know, there is no exact science for projecting changes in revenue resulting from changes to the Commonwealth’s tax code,” Chilton said in his letter to the governor. “It is an inherently complex and difficult process, especially when some taxes are being increased, and other taxes are being decreased.”

He noted that “in prior years, the LRC budget staff worked directly with our office and the Department of Revenue to reach a consensus on revenue projections in advance of the General Assembly considering tax legislation.

“HB 366 did not follow this process.”

Chilton said a member of his staff met with the LRC budget staff several times this week, “so that we can better understand the fiscal impacts of the changes contained in HB 366.”

This story was originally published April 6, 2018 at 6:51 PM with the headline "Legislators’ revenue bill misses mark by $50 million, says state budget director."