Projected budget shortfall likely to grow next week
A group of leading economists told state budget officials Friday to change state revenue projections based on the “worst case scenario” for the economy.
That means that a projected $294 million shortfall in state funds will likely grow when the group meets next Friday to determine new projections for the state’s General Fund and Road Fund.
The Consensus Forecasting Group, a panel of independent Kentucky economists who determine revenue projections for the state, made the unanimous decision to use a more pessimistic economic forecast after hearing that key economic indicators for Kentucky and the country show that the state and the nation are already in a recession.
What no one knows is how long that recession or contraction of the economy will last. State budget personnel had proposed basing revenues on a more optimistic projection that showed the economy slowing but eventually regaining its footing. But several of the economists at Friday’s meeting said they believed that the current recession could be even deeper than previous recessions in 2001, 1982 and the 1970s.
Lawrence Lynch, chair of the group, said the problem for economists is that there is too little information about this recession, unlike in previous recessions. That makes it difficult for anyone to predict what is going to happen over the next 18 months.
“I think there is no question that we’re in a recession,” said Virginia Wilson, a professor at the University of Kentucky and member of the group. “I don’t know how long that recession will be.”
This is only the second time that a governor has had to recall the group to change its revenue projections in the first year of a two-year budget cycle. The last time that happened was during the 2001 recession
The group will meet next Friday to come up with what they believe will be the revenue projection for the current fiscal year that began in July. Gov. Steve Beshear will then use that number to determine what cuts must be made. He has also said he will consider asking the General Assembly to approve additional sources of revenue, such as an increase in the state cigarette tax.
Thomas Jones, an economist with the Governor’s Office for Economic Analysis, told the group that the leading indices economists generally use to determine the health of the overall economy — such as the number of unemployment claims and manufactures’ new orders — have been consistently down in Kentucky.
“It’s not very common for all to be negative at the same time,” Jones said of the indices. In August alone, the indices decreased by 9.7 percent.
Kentucky’s unemployment rate was 7.1 percent in September, the highest it’s been in 16 years, officials with the state budget office said.
Many economists believed that once gas prices came back down from historic highs in August, consumers would have more to spend and the economy would begin a slight rebound. But nearly all indicators show that there are problems in nearly all sectors of the economy – from exports to credit.
“It’s not just a broken arm,” said Greg Harkenrider, deputy director of the Governor’s Office for Economic Analysis. “It’s a systemic problem.”
The current projected shortfall of $294 million is roughly 3.3 percent of the total General Fund revenues. General Fund revenues are used to carry out the day-to-day operations of state government .
The state’s Road Fund, used to fund infrastructure projects, is in even worse shape. The Road Fund depends on a host of transportation-related taxes, such as motor-vehicle use, license and gas taxes, which have taken a hit over the past year. The Road Fund has a current shortfall of $71 million. State officials have said that they have been cautious with the use of those funds, letting few road projects over the past year.
Beshear, in an October press conference, said that the state would be putting together a plan to address the shortfall that they hoped to release sometime in December. Beshear has already told his cabinet secretaries to prepare for spending cuts. Beshear has also said that he would not rule out calling a special session to ask the legislature to address the state’s economic woes.
- Beth Musgrave
About the Author: John Stamper is the accountability editor for the Lexington Herald-Leader. A native of Monticello, Ky., he has been with the Herald-Leader in a variety of roles since graduating from Western Kentucky University in 2000. Reach him at jstamper@herald-leader.com
Soteria | Nov 14, 2008 | Reply
I have been telling you all this for the last four years, so why is it any different now, why does it seem to be any surprise. The things they say are needed and what they are doing and how they are going about it is absolutely wrong. They don’t listen to the ones that don’t go their way and our country is going broke because of it, coercion and force, no ability to informed consent and agreement, of any kind in medical care or else where regardless of whether it is for an adult or child does away with any GOOD that any preventive efforts could have. It also increases the volume of medical bills and payments that are being made and benefitting and lining a very few key stakeholders pockets, and that is about all it is doing, really! Don’t ask me why I say it needs to change, okay. Just know that this is not the way we can make sure that all of our people can have good, free, decent, wanted, or needed, appropriate health care regardless of their ability to actually pay for it at the time or not. It is a waste of money and waste of efforts. It is not the way to do prevention either. What it is, is a way to line the pockets of the health care industry and that is about all. Those that are being trained to do this are being misled. The little folk or peons just see it as a way of making a living and they want to “help”, but there are some real others who are making a killing off of it, figuratively and literally! We all do have a need for decenta and voluntary and medically sound health care sometimes, we won’t any of us have any of it in the future if it keeps going this way and I will bet you that. Our country will go even more broke, by the time those that are pushing any of this will let any of you all see the true light on it!
Time to work together | Nov 14, 2008 | Reply
Gov Beshear has a whole lot of problems. He needs to start working with the Republican Senate to find a solution to the budget woes. The state needs more revenue and there is nowhere else to cut. Laying state employees off is not the answer – because then that compounds the problem. But at the same time, he needs to do something for state employees. The insurance next year is crap and yet employees only got a 1% raise. Meanwhile, over 3,000 employees have retired, which is okay, except that remaining employees have to try to do the work. Gov Beshear might need to check his inner circle, because state employees are not happy, and at this point he has little chance of reelection. Hopefully his staff is reading this blog.
SOSG | Nov 15, 2008 | Reply
They claim the state is in such sad shape financially, yet the agency I work for continues to hire. We recently got a ‘political appointee’ who has no knowledge whatsoever of the work that we do. I’m sure at a salary of close to $80,000 a year or so also. It frustrates me that for that kind of money we could have hired two or three people who actually have experience in this field. If the state is truly in the financial mess it claims it is the first step would be to eliminate unecessary hires, especially those that are unqualified for the positions they are placed in. The majority of these non-merit political positions are not even needed to start with, or could be filled from the merit staff already employed for a lot less money.
Soteria | Jan 5, 2010 | Reply
you all just reported that Beshears has 1 million for his campaign and the state is going broke, I don’t like the way it is going really to tell the truth it scares me, legalized gambling, drugs, and ????? your bet is as good as mine, I really think this needs to be controlled?
Soteria | Jan 5, 2010 | Reply
you all just reported that Beshears has 1 million for his campaign and the state is going broke, I don\’t like the way it is going really to tell the truth it scares me, legalized gambling, drugs, and ????? your bet is as good as mine, I really think this needs to be controlled?