Facing the COVID recession, Beshear must cut $618 million in state spending by June 30
Gov. Andy Beshear must slash $457 million from Kentucky’s General Fund and $161 million from its Road Fund for the current fiscal year that ends June 30, a panel of economists said Friday.
The Consensus Forecasting Group said the state’s economy has been wrecked by the COVID-19 pandemic and shutdown of most businesses. With income, corporate, sales and gas tax collection falling, state government faces lean times in the immediate future.
The roughly $11 billion General Fund pays for most state services, including education, health care, environmental protection and public safety. The Consensus Forecasting Group initially considered a plan calling for $377 million in General Fund losses but rejected that because it wasn’t pessimistic enough given current economic conditions.
The General Assembly will need to return to Frankfort for “a short, targeted special session” to help write a budget reduction plan for the Road Fund, Beshear told reporters Friday evening. He did not give a specific time frame.
Any state revenue shortfall greater than 5 percent in the General Fund or Road Fund “shall require action by the General Assembly,” according to state law. Under the numbers released Friday, the Road Fund would shrink by 10.4 percent, while the General Fund would shrink by 4 percent.
“We’ve had initial conversations with (legislative) leadership,” Beshear said. “We’ll want to talk with them again, make sure we have it all hammered out. Make sure we do it in as short of a time as possible.”
The offices of the House speaker and Senate president did not immediately respond to requests for comment on Friday.
Beshear’s budget director, John Hicks, last month instructed all state agencies to make plans for 12.5 percent spending reductions for the remainder of the fiscal year, although he later said all of those cuts might not be necessary.
Beshear and other governors are calling on Congress to approve a COVID-19 relief bill that includes direct aid to help state and local governments offset their mounting revenue losses. The U.S. House passed such a bill a week ago. But U.S. Senate Majority Leader Mitch McConnell, R-Ky., and other Republican lawmakers say they are reluctant to approve another massive aid package.
“This is a lot of pain to be dealt with in a short period. But the worst is yet to come if some relief doesn’t arrive soon,” Jason Bailey, executive director of the Kentucky Center for Economic Policy, said after the meeting. “You’re going to see a lot of cuts at the state and local level. It will worsen what is already the worst recession of our lifetime.”
On the Road Plan, which pays for roads and bridges, Bailey said: “Essentially, they’re going to have to stop some road projects that already are in motion unless they somehow find more revenue to make up for the shortfall. That’s going to make a lot of people very unhappy. It also will mean the loss of a lot of construction jobs.”
Senate budget committee Chairman Chris McDaniel, R-Latonia, said he wasn’t sure that a special session would be necessary. When lawmakers wrote the current two-year budget in 2018, they included a 10-item checklist of actions the governor could take if revenue fell short by more than 5 percent, including sweeping fund transfers from other state accounts; tapping tobacco settlement money; and freezing hiring across state government.
The 2018 budget bill also gives the governor broad discretion to “reduce General Fund appropriations in executive branch agencies’ operating budget units by a sufficient amount to balance either fiscal year.”
“He has some ability here with both reductions and expenditures to manage this himself,” McDaniel said. “He can consult with us if he wants without having to bring us back into session.”
The next fiscal year begins July 1, at which point more budget cuts are expected. Already braced for bad news, the General Assembly earlier this year approved a quickly written one-year budget that maintains most spending at current levels while allowing for cuts as necessary.
McDaniel said Kentucky faces tough fiscal times, but it would be healthier in the long run if the state government did not look to Washington for more COVID-19 relief.
“There comes a point where the federal government can only do so much. And should only do so much,” McDaniel said. “Because the more money the government prints, the greater the risk we all face of inflation.”
This story was originally published May 22, 2020 at 5:22 PM.
