FRANKFORT — A group of economists lowered its estimate for a Kentucky budget surplus this fiscal year and cautioned that the national and international economy could hurt the state's finances over the next two years.
The Consensus Forecasting Group, an independent group of economists, projected Friday that the state could have a $137.7 million surplus when the fiscal year ends June 30, down from an estimate of $192 million it made in August. The economists also set preliminary revenue forecasts for the state over the next two years that call for modest growth of 1.8 percent in fiscal 2013 and 2.4 percent in fiscal 2014.
The group will return in late December and possibly again in January to update the forecast, which state leaders will use to write Kentucky's two-year budget.
The European debt crisis, coupled with conflicting economic indicators about whether the United States is heading into another recession, led the group to lean toward a blend of pessimistic and neutral forecasts for the state's revenues.
For the current fiscal year, the revised estimate calls for $9 billion in revenues in the General Fund, an increase from the previous estimate of $8.8 billion. Some of the surplus, however, must be returned to the counties in the form of coal severance taxes.
For fiscal 2013, which starts in July, the revenue estimate is $9.1 billion, an increase of 1.8 percent from the previous year. For fiscal 2014, the estimate is $9.4 billion, an increase of 2.4 percent.
But many members of the Consensus Forecasting Group said they had concerns about current talks in Europe over the debt crisis. If that crisis is not resolved, the world will likely see another deep recession, which will affect Kentucky's finances.
"If things do go badly in Europe, it will be a lot worse," said Bruce Johnson, a professor at Centre College.
After two years of lackluster tax revenue, Kentucky had 15 months of year-over-year growth until August. Revenues dipped in August but climbed again in September.
Corporate income taxes have increased 30 percent during the first quarter of this year; coal severance taxes also are up. But the state's sales tax has been ornery and difficult to predict. It increased by 1.3 percent in August and 13 percent in September. Property taxes are down 26.3 percent for the first quarter.
"I think the views of the economy are very divergent right now," said Greg Hark enrider, deputy director of the Governor's Office for Economic Analysis, which prepares revenues figures for the forecasters.
James McCabe, a professor at the University of Louisville, said data on the nation's fiscal health is "conflicting as to whether we're going into a recession or not."
Because of those uncertainties, the group decided Friday that it may wait until January to set the final official revenue forecast.