Thursday, December 22, 2011

KY Revenue Estimates

Consensus Forecasting Group Official Estimates

The Consensus Forecasting Group met earlier this week to develop an official budget forecast that the Governor and General Assembly will use to develop the state's budget during the 2012 legislative session. The Consensus Forecasting Group (CFG) is a group of nonpartisan economists from around the state who meet several times a year to look at economic indicators and receipts, and then estimate the expected revenues in the upcoming years.  

The group met in October and put together a preliminary forecast, however today's meeting produced the official numbers upon which the Governor's budget will be based when he presents in next month.  The overarching themes from the meeting are that an economic recovery is inevitable, but the timing continues to vary among different economic analysis and the strength of the recovery is dependent upon policy decisions by Congress and the Federal Reserve.  

Now let's get to the numbers.  The CFG looked at three models - optimistic, control, and pessimistic - and they also discussed and looked at a couple different blends of the control and pessimistic models.  The consensus of the group was to move forward with the control estimates - primarily because some members felt that there was a good amount of pessimism already built in.  The estimates show marginal revenue growth above what was discussed when the group met in October.

General Fund
  • FY 12 - 2.8% growth - 136.5 million in additional funds above the previous official FY 12 estimate.
  • FY 13 - 2.4% growth - 216 million in additional funds
  • FY 14 - 3% growth  - 276 million in additional funds
The CFG also put together an official estimate for the state Road Fund.  Like the General Fund, the control model was chosen for estimates for the next biennium.  The Road Fund has proven to have consistent growth during these slow economic times, primarily because of the motor fuels tax and an index provision tied to the average wholesale price of gasoline.

Road Fund
  • FY 12 - 5.5% growth - 71.6 million in additional funds above the previous official FY 12 estimate.
  • FY 13 - 6.1% growth - 86 million in additional funds
  • FY 14 - 4.6% growth - 69 million in additional funds
* the reduced growth in FY 14 takes into account that the the index will not be triggered for an increase in the motor fuels tax going into FY 14.

Also of note, the longtime chair of the CFG, Larry Lynch announced he will resign from the group at the end of the fiscal year.  Lynch has been a member of the Consensus Forecasting Group since 1974.

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