Plunging tax receipts might produce a state budget shortfall of $150 million to $200 million in the current fiscal year, which is only 3 months old, House Speaker Greg Stumbo warned Friday.
The dire prediction came after state General Fund revenues fell dramatically in September. Revenues have been on a declining path for the last nine months, a signal that Kentucky's budget problems are likely to worsen.
Official word on the size of any budget shortfall is likely to come Monday, when a team of economists known as the Consensus Forecasting Group convenes in Frankfort to consider preliminary revenue estimates for the current and next two fiscal years.
The numbers they will consider are grim. In September, General Fund receipts dropped 9.8 percent compared with September 2008, State Budget Director Mary Lassiter said Friday. She said it was "quite possible" that further budget cuts are in store.
Economists had predicted the state's General Fund revenue would dip 1.5 percent this fiscal year, but it has declined 5.6 percent during the first three months.
To meet the current forecast, General Fund revenue can fall only 0.2 percent for the rest of the fiscal year.
There's no reason to believe that will happen, Stumbo said.
"We are not going to see the end of this until sometime in the latter part of next year. It will be a slow recovery," said Stumbo. "We'll have to manage our way as best we can through this financial crisis."
In June, lawmakers eliminated a projected budget shortfall of nearly $1 billion for the current fiscal year by cutting about $200 million in spending and using $741 million of federal stimulus dollars.
Lassiter warned in late August that preliminary revenue projections were showing an additional $82 million shortfall for the current year.
On Friday, Lassiter said declining revenue from sales taxes and income taxes, which make up nearly 75 percent of General Fund tax revenues, are particularly worrisome. The sales and use tax dipped 6.6 percent in September and was down 7.7 percent during the first quarter.
Individual income taxes declined 9.9 percent in September and 7.1 percent for the quarter.
State Deputy Budget Director Greg Harkenrider said the September declines were worse than expected.
"We knew it was going to be a bad quarter. Did we know that it was going to be this bad? No," Harkenrider said. "The recent uptick in national retail sales has not manifested itself in Kentucky."
Senate budget committee chairman Bob Leeper, an independent from Paducah, said he was disappointed, but not surprised by the numbers.
"The legislature has been trying to prepare," Leeper said. "There was some anticipation that the numbers might not be good."
The state actually lost money on two taxes during the first quarter of the year. The state had to refund more pari-mutual taxes and bank franchise taxes than it collected, leading to a $1.55 million loss from pari-mutual taxes and a $165,750 loss from bank franchise taxes.
Meanwhile, Road Fund receipts for September decreased 0.8 percent from September 2008 levels.
The official Road Fund revenue estimate calls for a 4.3 percent reduction in receipts for the entire fiscal year. Based on year-to-date collections, revenues can fall 4. 7 percent for the remainder of the fiscal year to meet the estimate.