Politics & Government

Kentucky faces $90.9 million budget shortfall; remedy still uncertain

Senate President Robert Stivers
Senate President Robert Stivers AP

FRANKFORT — Kentucky faces a $90.9 million budget shortfall for the fiscal year that ended June 30, raising the prospect of further cuts in the coming year, state officials said Thursday.

State Budget Director Jane Driskell said officials would determine soon how to deal with the gap. Kentucky's Constitution requires a balanced budget.

"While the books have been closed on the revenue side of the budget, activity on the expenditure side will be final later this month," Driskell said. "The determination for how to deal with the revenue shortfall has been underway and will be complete soon."

Revenue for the General Fund, which pays for most state programs, totaled $9.46 billion for the fiscal year. That was $90.9 million, or 1 percent, less than the official revenue estimate, which projected 2.2 percent growth in revenue for the year.

Driskell also reported that receipts for the $1.56 billion Road Fund, which pays for road and other transportation programs, fell short of estimates for the fiscal year by $22.2 million, or 1.4 percent.

House budget chairman Rick Rand, D-Bedford, called it "a manageable shortfall."

Rand said he thought Gov. Steve Beshear should be able to address the shortfall without resorting to layoffs or calling a special legislative session.

In particular, he noted that the state could take half of its $95 million "rainy day" fund for emergencies and apply it to the shortfall.

"The problem may be that spending cuts will be needed in this new fiscal year that began July 1 because revenues now will need to grow more than have been projected for this two-year budget," Rand said.

Senate President Robert Stivers, R-Manchester, said he was worried about future budgets, noting the state eventually would face increased costs for expanded Medicaid coverage under the federal Affordable Care Act.

"We've seen coal severance tax collections drop, and the dip in personal income taxes indicate a weak economy where many people are not working," Stivers said. "Where are we going to get the money? I'm worried about future budgets."

Driskell said the shortfall was another example of why lawmakers should overhaul Kentucky's tax code. She called it "an example of the governor's admonition that the tax code in Kentucky needs to be more elastic," meaning revenue should increase as the economy expands.

House Speaker Greg Stumbo, D-Prestonsburg, said the shortfall would make it "a little tougher" to meet budget projections.

"We will monitor this in the months ahead and, if necessary, make additional adjustments when the General Assembly meets in January," Stumbo said.

He said House and Senate leaders would review staffing levels to deal with the legislative branch's portion of the shortfall.

Rand said Beshear was "well-experienced" in handling budget shortfalls.

The governor has cut $1.6 billion from state budgets since taking office in December 2007.

This year the General Assembly approved a $20.3 billion spending plan for the upcoming two years that included long-awaited raises for state employees and schoolteachers, but it continued to cut funding for public universities and many state agencies.

Some agencies will have lost 41 percent of their funding since the economic recession of 2008.

Driskell reported that revenue for June totaled $979.1 million, a 2.2 percent increase over what was collected the previous June. Rand said he was "pleasantly surprised" to about that.

During the last fiscal year, the General Fund grew 3.3 percent in the first three months, declined 0.7 percent in the second quarter and grew 2.1 percent and 0.5 percent in the final two quarters, respectively.

Overall, those rates of growth were less than the 2.2 percent growth that a group of independent economists had projected for the state.

A major reason for the General Fund shortfall was "a significant slowdown" in income tax collections, Driskell said.

State income tax collections for the fiscal year increased just 0.7 percent, or $26.3 million, from the previous year. In the three prior years, income tax collections grew 8.3 percent, 2.8 percent and 6 percent.

On the positive side, sales and use taxes showed solid growth, increasing $109.3 million, or 3.6 percent. Collections had declined in three of the five previous years.

The state saw its fourth consecutive annual decline in cigarette tax collections, decreasing $10.6 million, or 4.4 percent, in fiscal year 2014.

Coal severance taxes fell 14.3 percent, or $33 million, during the past year, which was close to forecast expectations.

Among the two largest revenue-producing measures for the Road Fund — motor fuels and motor vehicle usage taxes — revenue was less than estimates by $19.9 million. All other Road Fund accounts, taken together, were $2.3 million below forecasts.