Kentucky Political News Headlines

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.