Tuesday, December 29, 2009

8 steps to understanding Kentucky's budget crunch

8 steps to understanding Kentucky's budget crunch:

From today's Herald-Leader, an easy to understand guide to Kentucky's budget problems. I am assuming they prepared this graphic in advance of today's budget briefing by Governor Beshear where he will likely lay out his approach to solving Kentucky's latest $100 million budget deficit and give a preview to his budget address set for January.

"Although the economic recession, which has brought double-digit unemployment to Kentucky, is the major factor behind Kentucky's budget woes, their roots run much deeper. Here's an eight-step primer in advance of the 2010 General Assembly, which begins Jan. 5.

1. Kentucky has a longstanding cash crisis. Since 2000, the General Assembly has spent about $3.6 billion more from the General Fund than the state collected in revenues.

2. Lawmakers have used a series of short-term fixes to balance the budget over the years. Sometimes, they raid other pots of money that are set aside for specific purposes, such as cleaning up leaky underground storage tanks. More recently, they've relied on federal stimulus money.

3. Meanwhile, lawmakers have been borrowing big. As of June 30, Kentucky had $6.875 billion in outstanding debt. It takes 6.43 percent of the state's revenue to pay interest on those bonds.

4. These long-term budget issues were already in place before the current decline in state revenues. General Fund revenues peaked at $8.664 billion in fiscal year 2008, but that number is expected to dip below $8.2 billion this year.

5. Lawmakers responded to the budget crunch in the first half of the year by increasing taxes on alcohol and cigarettes, cutting expenses and spending federal stimulus funds. When the fiscal year ended June 30, the state had decreased overall spending for the first time since 1993.

6. They didn't cut enough. Now, lawmakers face another projected shortfall in the current fiscal year, which ends June 30, of $100 million. Gov. Steve Beshear has warned most state agencies to plan for a 6 percent spending cut.

7. The outlook for the next two years is not good. To continue spending $9.09 billion a year in the next biennium, Beshear and lawmakers must come up with $890 million more than is projected to flow into the General Fund over that time.

8. The governor, who says he opposes broad-based tax increases, will lay out his budget plan to lawmakers by Jan. 19. The House and Senate, whose leaders have signaled they might consider "tax reform," each get a chance to rework the budget. Leaders from both chambers must smooth out their differences by April 15." From Kentucky.com

Wednesday, December 23, 2009

Kentucky's top woman wins praise from governor

A good profile of Mary Lassiter, Secretary of the Governor's Cabinet and Budget Director, by the Herald-Leader. Lassiter is representative of the type of veteran state government officials that Governor Beshear relies on to run State Government.


Kentucky's top woman wins praise from governor: "In her trademark pantsuit, a folder of papers tucked under her arm, Mary Lassiter dashes down a marbled corridor in the state Capitol, a rare sighting this time of year when she spends most of her time pouring over data she'll use to develop the governor's next budget proposal.

Lassiter has risen through the ranks of state government during the past 27 years from number cruncher to the governor's chief adviser at a tumultuous time of sharp budget cuts totaling some $800 million this year alone. And she's winning praise from Gov. Steve Beshear for her 'clear-eyed leadership and guidance' at a time of financial crisis.

With a projected shortfall of some $900 million over the next two years, Beshear said he's counting on Lassiter to help get Kentucky back to financial stability.

'Because of her efforts, we are in a stronger position than many other states despite the terrible economy,' Beshear said.

Lassiter, 48, a native of Sikeston, Mo., came to Kentucky after high school, attended Murray State University as a freshman before transferring to the University of Kentucky where she received bachelor's and master's degrees in business administration."

About Kentucky 12.23.2009 - Economic Impact

About Kentucky 12.23.2009 - Economic Impact: "




Governor Beshear's weekly address.



Tuesday, December 22, 2009

Beshear & Obama Approval Ratings


The Survey USA & WHAS in Louisville have released new polling data on the job approval ratings of Governor Beshear and President Obama.

The charts to the right tell most of the story, but for those wanting to dig in on the data you can access Beshear's numbers here and Obama's numbers here.

Monday, December 21, 2009

CFG & State Revenues

The Consensus Forecasting Group, a group of state economists that forecast Kentucky's revenue based on national and Kentucky-specific economic variables, met today in Frankfort to finalize their estimate for Kentucky's revenues for the current fiscal year and the next biennium. This revenue forecast will be used by the General Assembly to build Kentucky's state budget over the next 2 years when lawmakers return to Frankfort in January. 

The group was more optimistic than it has been over the last year in regards to Kentucky's revenues. Here is the revenue picture for the General Fund and Road Fund:  (You can access and download copies of the relevant handouts HERE)

- General Fund - The group was moderately optimistic for the rest of the current fiscal year, FY 2010, increasing revenues by $60 million, bringing the budget shortfall down to $99.9 million for FY 2010 from the groups previous estimate in October. In the next two years of the biennium, FY 2011 & FY 2012, the group was even more optimistic increasing revenues $173.9 million in FY 2011 and $183.7 million in FY 2012.

Analysis: Although today's news was positive on Kentucky's revenues and probably start to signal the beginnings of an economic recovery, the facts are that the 2008 budget enacted by the General Assembly had annual spending levels of roughly $9.2 billion. The revenues did not allow the state to actually spend that much, as the legislature had to amend the 2008 budget on multiple occasions by both cutting the budget and utilizing one time monies to fill over $1 billion worth of budget deficits. 

Unfortunately, the spending the revenue estimates announced today for FY 2011 is $8.4 billion and FY 2012 $8.8 billion will also not support the level of budgeted spending from the 2008 enacted budget, unless new revenues are found. Combined for both years of the biennium, the legislature appears to be dealing with roughly $1.2 billion less spending in the next budget cycle. The legislature does have some leftover stimulus monies that they will use to fill the FY 2010 shortfall of $99.9 million and to offset some of the larger deficit, but not enough to fill the entire hole.

Thus tough decisions on revenues or budget cuts will be forthcoming. The current political situation may not make any of these decisions easy with all 100 House members and half of the state Senate up for re-election in November of 2010.

- Road Fund - The group was moderately optimistic compared to their previous forecasts. They predicted modest growth in the Road Fund for the rest of the current fiscal year FY 2010 and for both years of the next biennium. Increasing revenues $15.8 million in FY 2010 and $9.2 million in FY 2011 compared to their previous forecasts. They continue to see growth in FY 2012 at a 5.5% rate as well, however their previous forecasts had also been positive in FY 2012 so no new revenue was generated for that fiscal year compared to their previous forecast. 

Analysis: The motor fuels tax continues to lead the growth in the Road Fund. The increase made by the group today over their previous October forecast results from an increase in the variable portion of the tax rate that had not previously been expected.

The second major piece of road fund revenues is the motor vehicle usage tax, which was forecast to be up for all three years of the biennium due to increase in consumer spending on vehicles. This was slightly offset in Kentucky due to the new car trade-in allowance provision that was passed during the special session this Summer. The group had initially thought that the impact of the trade-in allowance would be a $25 million hit to the road fund in FY 2010. Then they modified that down to a hit of $16.5 million with a small portion occurring in FY 2011. At this meeting they revised the number up to a $20.2 million hit to the road fund with a small portion effecting FY 2011.

The good news for the Road Fund is similar to that for the General Fund in that the 6 year Road Plan and the 2 year spending plan are both over programmed compared to current revenues. It will be interesting to see if the legislature will continue their recent practice of capturing new road fund revenues as the variable portion of the fuels tax increases.

We will continue to follow Kentucky's tough budget situation leading up and into the legislative session in January 2010, that is only a couple of weeks away. 

State budget gaps linger at year's end

State budget gaps linger at year's end:

The current recession already has forced states to deal with greater budget shortfalls than they faced in the five years it took them to recover from the last national recession after the 2001 terrorist attacks.
"Connecticut’s 2010 legislative session is only three weeks away, but in Hartford, state lawmakers are still dealing with 2009 problems. On Dec. 15, they gaveled themselves into a special session. Later the same day, they gaveled themselves out without voting on the governor’s plan to solve the $467 million budget deficit that erupted since the state's two-year, $37.6 billion budget passed on Sept. 1.
" From Stateline.org

Thursday, November 12, 2009

Beshear: Special session possible

See the article below from the Herald-Leader's Bluegrass Politics blog.

***********************************************************

Beshear: Special session possible: "FRANKFORT -- Governor Steve Beshear is leaving open the possibility of a special legislative session in coming weeks to approve economic incentives for a possible Harley-Davidson plant in Shelbyville.

Gov. Steve Beshear

Harley-Davidson officials said last week that the Shelbyville location is the only one it's considering if it relocates its York, Pa. plant.

The Kentucky Cabinet for Economic Development has remained mum on what type of incentives the state is considering to lure the plant to Kentucky. The York plant employs 2,500 people. Harley-Davidson has also said it may stay in Pennsylvania.

The Kentucky Gazette, a Frankfort political publication, said on its Web site Thursday that Senate leaders had been warned by Beshear that he may call a special legislative session the week of Dec. 13, just a few weeks before a regular legislative session begins Jan. 5.

Beshear's office would not confirm whether Beshear would call a special legislative session, but Beshear said Thursday that economic incentives for Harley-Davidson would be the only item on the agenda if a special session is called.

'We are very excited about the potential opportunity for Harley Davidson to locate a facility in the Commonwealth,' Beshear said. ' We are making plans related to this project and don’t know if there will be a need for a special session at this juncture.'

-- Beth Musgrave"

Tuesday, November 10, 2009

State revenues down again in October

Revised 3:15 p.m.: Road Fund also down 4%. Here is a link to the full report: Click Here

See the note below from the Herald-Leader's blog on Kentucky politics.


*****************************
State revenues down again in October: "FRANKFORT -- Kentucky's revenues continued to decline in October, dipping 4 percent compared to last year, according to figures released Tuesday.

The state's General Fund receipts have declined 5.2 percent during the first four months of the fiscal year, according to the Office of State Budget Director. To meet the state's official revenue estimate, receipts must increase 0.2 percent over the remaining eight months of the fiscal year.

October's poor performance was expected by the Consensus Forecasting Group, a group of independent economists who help the state predict how much revenue it will receive each year, State Budget Director Mary Lassiter said in a written release that

In October, the Consensus Forecasting Group projected that there could be a revenue shortfall of $161 million in the current fiscal year, which ends June 30. The group will return in December to make official predictions for this fiscal year and the next two years.

'While the ($161 million shortfall) is unofficial at this time, we are very concerned about the ability of revenues to meet budgeted levels,' Lassiter said. 'The Beshear administration remains committed to tight fiscal management as the commonwealth endures what we hope is the tail end of this persistent economic downturn.'

The state receives most of its money through sales and income taxes. Sales and use tax receipts were down 4.3 percent in October over the previous year, figures show.

One bright spot: cigarette taxes grew 53 percent from October 2008 because of a 30 cent tax increase the Kentucky legislature approved earlier this year. For the first four months of the fiscal year, taxes from cigarettes were up 72.3 percent.

-- Beth Musgrave"

Sunday, November 1, 2009

Lawmakers will face a $1.19 billion question

The Herald-Leader has a good article today that further lays out the budget woes the General Assembly and Governor will grapple with in the 2010 session.


Lawmakerswill face a$1.19 billionquestion: "When lawmakers return to Frankfort in January, one number will loom large: $1.19 billion.

According to preliminary estimates, that's how much money lawmakers must find in the couch cushions of state government to continue spending at current levels through June 2012.

The state still has $485 million of federal stimulus money to throw at its budget gap, but bridging the remaining $705 million shortfall could create headaches for just about everybody, including students, state workers, the poor and the sick.

Despite the state's money woes, proposals by two lawmakers from different ends of the political spectrum to overhaul Kentucky's tax system won't likely gain approval in the upcoming legislative session.

Rep. Bill Farmer, R-Lexington, and Rep. Jim Wayne, D-Louisville, have re-filed separate and very different plans for systemic tax reform. Although different in most ways, both plans call for extending the state's sales tax to services ranging from manicures to engineering work."

Thursday, October 29, 2009

Domino Effect

The resignation of Senate Majority Floor Leader Dan Kelly has had a domino effect of sorts for the State Senate in terms of leadership positions and committee chairs. Last week, Sen. Robert Stivers was elected to succeed Kelly as Majority Floor Leader, which left open his position as Chairman of Judiciary.

Today these appointments were made:




- Sen. Tom Jensen has been appointed Chair of the Judiciary Committee, which leaves open his position of Chairman of the Natural Resources Committee. Jensen is an experienced legislator, attorney, and Chairman so the transition should be relatively smooth.







- Sen. Brandon Smith has been appointed as Chair of the Natural Resources Committee. Sen. Smith has been Chairing the Special Subcommittee on Energy, so many of the topics his committee has been dealing with will be pertinent to his new role with the Natural Resources Committee.  







 Photos courtesy of the LRC.

Monday, October 26, 2009

Kelly appointed to judgeship

The politics in the Kentucky State Senate continue to unfold as Senator Dan Kelly (R) the former Senate Majority Floor Leader accepts a judicial appointment from Democrat Governor Steve Beshear leaving a vacant Senate seat. This open seat will be hotly contested as the balance of power in the State Senate hangs in the balance.

With Kelly's resignation, the Republicans hold the Senate 19 to 17 Democrats and 1 Independent. The winner of Kelly's open seat will either strengthen the Republican control of the Senate or shrink the majority down to a very narrow one-seat margin.

Here is the article from the Herald-Leader.
***************************************

Kelly appointed to judgeship: "FRANKFORT -- Democratic Gov. Steve Beshear appointed Republican state Senator Dan Kelly to an open judgeship on Monday in an effort to further erode the Republican Party's slim majority in the state Senate.

Senate Floor Leader Dan Kelly, R-Springfield

In an executive order, Beshear appointed the long-time senator from Springfield to an open circuit court judgeship in the 11th Judicial District in Central Kentucky, paving the way for a special election.

Beshear set the special election for Kelly's 14th Senate District seat and for an open house seat for Dec. 8.

A seven-person judicial nominating commission on Friday picked Kelly and two other lawyers as possible nominees. Republicans and Democrats alike have said they expected Beshear to appoint Kelly as a way to slim the Republican majority in the state Senate."

Thursday, October 15, 2009

Kentucky Is Not Alone

This report from Stateline shows that Kentucky's not alone with its budget woes.

State tax revenues plunge in record drop:

State tax collections were down by a record $63 billion for the fiscal year ended in June, which is roughly twice the amount states received during the year from the federal stimulus package, a new report (PDF) shows.

Total state tax collections from April through June dropped by 16.6 percent compared with the same period a year earlier and the worst since data was collected in 1963, the Nelson A. Rockefeller Institute of Government said in its latest analysis of Census tax data.

Double-digit declines were reported in 36 states for the second quarter. Alaska suffered the worst, with a drop-off of 86.5 percent due to the recent drop in oil prices, the report said. Vermont fared the best, with a 2.2 percent growth in tax revenues, primarily due to a one-time estate-tax settlement. South Dakota suffered a drop-off of only 0.8 percent in the second quarter.

The national economy and stock market may be rebounding, but Rockefeller said states can expect budget gaps for the next two years and possibly the next four.

Tuesday, October 13, 2009

Report shows states' revenue sources

Click on the link to see a report from Stateline.org on state tax base. Pretty interesting - -




Report shows states' revenue sources: "Sales and property tax payments account for more than 60 percent of state and local government tax revenue, according to a new analysis that also singles out the states that rely most heavily on one kind of tax."

Monday, October 12, 2009

CFG & State Revenues

The Consensus Forecasting Group met today in Frankfort to review tax receipts for the 1st quarter Fiscal Year 2010 and to revise their previous revenue forecasts made in May and August of this year. The group is made up of the state's economists and they come together several times a year to forecast the revenues that the state budget is based upon.

The CFG remained overall not optimistic about Kentucky's economy over the next three fiscal years and their forecast for the General Fund reflects that. The bottom line is state revenues are still substantially below the 2008 levels and look to remain that way at least until 2012.  Federal Stimulus funds helped close the gap between expenditures and revenue this past year, but only a small amount remains for the next biennium.

1st Quarter FY 2010 Receipts


The first quarter of FY 2010 ended September 30, 2009 and the General Fund tax receipts were down 5.6% over the same period a year ago. Most of the reason for the decline is negative growth in the sales tax, Kentucky's 2nd largest revenue source, and the individual income tax, which is the largest source of state revenues. The sales tax was down 6.6% and the individual income tax was down 9.9% in September 2009 alone.

The Road Fund's first quarter receipts were down 3% over the same period a year ago. Revenues were buoyed somewhat by a 2.7% increase in motor fuels taxes over the first quarter, which is the largest component of road fund revenue.

Click Here to see the full details on the 1st quarter receipts.

CFG Estimates

Click Here to access the CFG handouts.

General Fund
The CFG revised their previous revenue estimates for FY 2010 further down to a 3.5 % decline resulting in a decrease in General Fund revenues of around $160 million. This due in large part to the slumping sales tax receipts that have been negative for 4 straight quarters.

For FY 2011-FY 2012 the economists lowered their levels of increasing revenues from previous estimates. They do see revenue growth in these fiscal years, but not at the levels they predicted two months ago. They forecast revenue growth of  2.2% for FY 2011 and 3.7% for FY 2012.

Road Fund
The CFG revised their previous revenue estimates for FY 2010 up slightly from a -4.0% to -1.6% which will result in an increase in road fund revenues of roughly $ 28 million. The primary reasons given for this bump in FY 2010 is due to an increase in the motor fuels tax set to roll on this month and fewer people are taking advantage of the changes to the automobile tax credit put ion place by the legislature this summer. Only $1.4 million of the $25 million credit has been used as of Friday, October 9, and the economists had predicted the cap would be used up more quickly.

For FY 2011-FY 2012 the economists see moderate growth in Road Fund revenues of 4.2% in FY 2011 and 6.6% in FY 2012. This is due to the likelihood of an increase in the motor fuels tax for these years, because the average wholesale price is predicted to stay above the current floor. 

If you have any questions please let me know.