Election Summary

2011 General Election Re-Cap

Top Headlines:
- Governor Beshear Re-Elected
- Democrats win 6 of 7 Constitutional Officers, Comer lone Republican Winner
- Voter Turnout Low

Kentuckians went to the polls today primarily to elect Kentucky's seven statewide Constitutional Officers with the featured race being for Governor of the Commonwealth between incumbent Governor Steve Beshear (D), Senate President David Williams (R), and Gatewood Galbraith an Independent.

Governor Beshear was successfully re-elected to a second term with 56% of the vote. President Williams and Gatewood Galbraith garnered 35% and 9% respectively of the more than 800,000 votes cast in the Governor's Race. With Governor Beshear's victory his running mate, former Louisville Mayor Jerry Abramson (D) becomes Kentucky's Lt. Governor.

Although the Governor's Race was the featured race on the ballot the outcome was somewhat anti-climactic as Governor Beshear had shown significant strength in pre-election polling that matched his margin of victory tonight. Political observers are much more interested in what agenda Beshear might push forward in a second term after a large victory tonight. His victory speech offered a few hints; including: continuing fiscal discipline, world-class education system, and job creation is and will continue to be the top priority.

Down the Ballot

With wins in the Governor, Lt. Governor, Attorney General, Secretary of State, Auditor, and Treasurer races, the Democrats picked up 6 of 7 Constitutional Offices. The lone Republican winner was State Rep. James Comer who will be the next Agriculture Commissioner.

Its still early to draw significant analysis from tonight's election returns, but it is somewhat surprising that Kentucky; which has 2 U.S. Senators, 4 of the 6 Congressional Seats, and a State Senate controlled by Republicans, would see such strength by Democrats statewide. Maybe Kentucky's strong Democrat voter registration is just more persistent in these Constitutional election years.

Only three of the seven races featured incumbents, but all three won and all three were Democrats: Governor Beshear, Attorney General Conway, and Treasurer Hollenbach. So it doesn't seem that an anti-incumbent sentiment was at play today, which has been more predominant in the past few election cycles.

No doubt more analysis will be done on tonight's returns in the days ahead.

Official Returns (Winners in Yellow) 98.6% of Precincts Reporting

Voter Turnout - 28%  This is historically low, second only to the 1999 Gubernatorial Race when turnout was 20%.

Governor-Lt. Governor

Beshear-Abramson (D)  56
Williams-Farmer (R)      35
Galbraith-Riley (I)           9

Attorney General

Conway (D)   55
P'Pool (R)     45

Secretary of State

Grimes (D)    61
Johnson (R)  39

Treasurer

Hollenbach (D)   49
Crosbie (R)         46
Moellman (L)        5

Auditor

Edelen (D)      56
Kemper (R)     44

Agriculture Commissioner

Comer (R)    64
Farmer (D)   36

Appropriations and Revenue Committee

Meeting Summary

10-27-11

The Appropriations and Revenue Committee met in Frankfort on 10-27.  The Committee heard from LRC staff on the Consensus Forecasting Group's two year economic and revenue forecast.  As you will remember, a few weeks ago CFG met and developed estimates or planning figures in preparation for the development of the 2013-14 Executive Branch Budget.  A good part of today's presentation was a review of what the consensus forecasting group is charged with and the process they go about using to put together their estimates. As part of this discussion, the point was made - and it's worth repeating - that fiscal year 2011 General Fund revenues surpassed the 2008 numbers - which were at pre-recession levels.

As you heard from us following the CFG meeting, it appears that the group will use a blend of the control and pessimistic forecasts for the General Fund estimates.  By using this model, the economists estimate that the state will realize some growth at the rate of 1.8% in 2013 and 2.8% in 2014.  Interestingly, Chairman Leeper had several points that he emphasized to his fellow committee members.  He was very clear that putting the budget together this upcoming session will not be an easy task - and he encouraged the committee to go back home and let their constituents know that even though there appears to be revenue growth for the next biennium, the budget situation is still dire.  Senator Leeper explained that during the last budget cycle roughly $300 million was used in one time money to close the gap and help balance the budget.  He had committee staff put together numbers based on the CFG estimates that there will be 1.8% revenue growth in 2013 and 2.8% in 14.  Based on those numbers, Leeper says that the state will face a deficit of $337 million in 2013 and $224 million in 2014.  Those numbers do not take into account any additional expenses in Medicaid, Corrections, Unemployment Insurance and the SEEK formula.  On November 29th, A&R will meet again and discuss in detail the potential budget deficit for the next biennium.

It appears that the budget dynamics for this next session are beginning to unfold and that the Senate majority could take a position against new spending.  Speaker Stumbo has on several occasions advocated for taking advantage of low interest rates and has said that now may be the time to address projects like building schools and addressing other infrastructure needs.  As you would expect, the potential seems to exist for opposite budgetary priorities from the majority parties in the House and Senate.

Time will tell, but rest assured that the next few months, along with the 2012 session, are bound to get interesting.

State Revenues Rebound

The State Budget Director Mary Lassiter released the September revenue receipts today and the General Fund revenues were up 10% and the Road Fund revenues were up 5.9% over September 2010. You can download the full release and numbers HERE, our analysis is below:

- After General Fund revenues decreased in August, for the first time in over a year, they came back strong in September. The General Fund revenues only have to achieve 0.2% increase over the rest of the fiscal year to achieve the estimated growth of 1.3%. This seems likely if the state's economy is able to shrug off the woes of the national economy.

- The Road Fund continues its growth with the fifteenth straight month of revenue increases. The Road Fund can actually fall 1.4% over the rest of the fiscal year and achieve the official revenue estimate. A significant surplus in the Road Fund seems likely if gas prices continue at their current levels.

Analysis: The Consensus Forecasting Group, the economists that predict the revenues the next state budget will based on, have been meeting and reviewing the state's economy. In August they were relatively upbeat because the 2011 FY was in the books and the state had made a significant deposit of $121 million in the rainy day fund. But at their September meeting the national economy had soured and the August receipts were down and they were very pessimistic about the state's short term and long term revenues. The question is how will strong growth in September revenues impact their outlook at the upcoming CFG meeting this Friday, Oct. 14?

Stay tuned!

Notes from CFG Meeting

The Consensus Forecasting Group, a panel of economists charged with predicting the state's future revenues, met today in Frankfort to review the key economic data for the US and Kentucky economies. The highlights from the meeting are below and you can view the handouts HERE:


- This is the second of a three meeting series, with the final meeting of this series scheduled for October 14, when the CFG will make its preliminary revenue forecast. The Governor's Office will utilize that number to prepare the Governor's Budget that he will present in January. The CFG will meet again in December and January to finalize the state's revenue forecast for use in the 2012 Session as the General Assembly builds the next biennial budget.  


- Today's meeting was more focused on an analysis of the economic data and discussion of the economists overall views of the economy. Most of the economists were relatively pessimistic in their view of the economy. That view may still lead to revenue growth in the next biennium, but possibly not as robust as originally thought.

Budget Committee Notes

The Interim Joint Committee on Appropriations & Revenue met yesterday and heard testimony regarding Kentucky's Economic Development efforts and a staff report regarding Kentucky's use of bonding and current credit status.

Budget Staff Changes: Of particular importance, it was announced at the meeting that Bart Hardin the current LRC Budget Director would be retiring next week. Beginning October 1, Greg Rush will take over those duties. Greg has most recently been the Budget Review staff for Education. He will be joined by Stephanie Craycraft as his Deputy. Stephanie is coming from the Budget Review staff for Transportation.

Economic Development

Secretary Larry Hayes and Commissioner for Business Development Erik Dunnigan presented an update to the committee on current economic development efforts and the status of implementation of House Bill 3 from the 2009 Special Session. Much of their presentation followed very closely with their slides which are available for download HERE, the highlights are below:

- Staffing at the Cabinet is down 30% from 2007. They have been looking at their structure and trying to get "flatter" by reducing down from 3 Commissioners to 1 and by tearing down silos to be more cross-functional. This has been in response to the changes in HB 3.

- Prior to the passage of HB 3 in 2009, they had the K-programs, which were useful, but they took a piecemeal approach to trying to help a company. The focus was on new business location and not necessarily helping the companies Kentucky already had. Business changed the way they were doing things, competition wasn't for the next Toyota, but inter-company for a Kentucky business unit to compete against the same company's unit in another state or country. Incentives had to change.

- HB 3 has been helpful because of the reinvestment incentives, the consolidation of the K programs, and the increased accountability if companies do not meet the goals in their economic development agreements.

- Since 2009, the Cabinet credited HB 3 with $3.5 billion in new investment from 350 firms that have been approved. Creating nearly 20,000 new jobs and retaining more than 7,000 existing jobs.

State's Debt

LRC Staff for the Capital Projects and Bond Oversight Committee, Kristi Culpepper, gave a presentation on the state's debt. Her presentation served as the highlights from a recent report she compiled that is more in depth on Kentucky's bonded indebtedness. You can download the presentation slides and the report are attached, and the highlights are below:

- Due to structural budget imbalances, high levels of debt per capita and dept as a percent of revenues, and due to high levels of unfunded liability in Kentucky's pension system Fitch and Moody's have each downgraded Kentucky in the last year. Further, the outlook from all three of these agencies is negative.

- The practical impact is that Kentucky will have difficulty issuing more debt going forward, because investors will want higher rates thus costing more in terms of state appropriations for debt service.

- There are no silver bullets to solve the problem as increased appropriations to fund items like pension liabilities eat up revenues that could be used to pay debt service on new or expanding projects and programs and actually reduce the states cash position.

The attached presentation and report provides more in depth analysis.