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