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State's budget forecast a little brighter

FRANKFORT — Despite a slightly more optimistic economic outlook, the state still can expect a nearly $1 billion shortfall over the next 2 1/2 years, a group of independent economic forecasters said Monday.

The state is looking at a shortfall of about $100 million for the current fiscal year, which ends June 30.

That's about $60 million less than October's prediction from the Consensus Forecasting Group, a group of independent economic forecasters who help predict how much revenue the state will bring in.

That means for the sixth time in two years, state agencies will be asked to make cuts to make up for the shortfall. The state has already slashed more than $800 million from its budget over the past two years.

The cutting and belt-tightening is far from over.

The Consensus Forecasting Group also released the revenue predictions for the next two fiscal years on Monday. If the state wants to keep spending at its current level of about $9.09 billion a year, the state is looking at a two-year shortfall of about $890 million over the next two years — about $600 million in fiscal year 2011 and $290 million in fiscal year 2012, according to the revenue projections.

State leaders were heartened by the more rosy revenue estimates, but many cautioned that the state's ongoing cash flow problems will continue.

"Today's report is a positive sign and a good Christmas present," said House Speaker Greg Stumbo, D-Prestonsburg. " It's like digging out of a hole, though. While it's a step in the right direction, we still have a long way to go."

Gov. Steve Beshear, in a written statement, said Monday that although the budget shortfall over the next two years is less than originally expected, the state's expenses could continue to grow.

"The budget gap we face is greater than just the difference between projected revenues and what we are spending today," Beshear said. "We have both increased needs in several areas and the stimulus funds that we have utilized to keep our budget in balance will be exhausted by Dec. 31, 2010."

The state has already used more than $787 million in federal stimulus dollars to plug holes in previous years' budgets. It has about $485 million remaining to balance its books for this fiscal year and the next.

But it won't be enough.

In order to balance its books, the state either has to make cuts or come up with additional money. But increasing revenues— either through an increase in taxes or fees — is unlikely in the upcoming session: All 100 members of the House and half of the Senate face re-election in 2010.

Beshear, who says he will deliver his budget proposal for the next two fiscal years to the legislature by Jan. 19, has also said that he does not support any broad-based tax increase to plug any shortfalls.

The Democratic-controlled House has said they would prefer to write a one-year budget for fiscal year 2011, then return in January 2011 to work on the second year of the biannual budget. Many hope that the federal government will give states a second round of federal stimulus dollars.

But Beshear and the Republican-controlled Senate have balked at the idea, saying that the state Constitution says the legislature must approve a two-year budget in the upcoming legislative session.

Senate Majority Leader Robert Stivers, R-Manchester, has said he believes that a one-year budget would be unconstitutional and that the Senate plans to enact a two-year budget this legislative session, which begins Jan. 5.

Senator Bob Leeper, I-Paducah, said although he believes that the more optimistic revenue projections for the state mean a little less pain, the state will still struggle to come up with money to continue spending at its current level.

"The only real change is that it makes it less of a deficit than we originally thought," Leeper said of Monday's revised budget numbers.

Leeper, who chairs the Senate Appropriations and Revenue Committee, said he, too, believes that the state needs to plan for a two-year budget.

"We are really hoping to work together with the House and Beshear to come up with some good ideas on how to do that," Leeper said.

Rep. Rick Rand, D-Bedford, chairman of the powerful House Budget Committee, has said that the state might need to look at making cuts to key areas that have been exempt from previous rounds of cuts — such as the main funding formula for schools and the state's corrections budget.

But those who have watched services repeatedly cut back over the past 18 months say the legislature needs to find the political courage to ensure services that they say Kentucky's families need.

"The problem is too big to adopt one solution alone — spending cuts," said Brigitte Blom Ramsey, the director of Kentucky Youth Advocates' Tax and Budget Initiative. Kentucky Youth Advocates lobbies on behalf of the state's children. "Policymakers need to adopt a balanced budget approach in crating the 2011-2012 budget that includes new revenue streams."