Kentucky expected to have slightly more money over next 2 years

By Beth Musgrave
bmusgrave@herald-leader.com

FRANKFORT — State lawmakers will have slightly more money to appropriate over the next two years than originally expected, new revenue figures released Wednesday show.

But Kentucky’s expenses also continue to climb, which means more budget cuts are likely, state budget officials said earlier this week.

The Consensus Forecasting Group, a group of independent economists, released its final forecast for the state’s revenues over the next biennium on Wednesday after a more than three-hour meeting.

Wednesday’s official forecast was generally rosier than a preliminary forecast released in October.

The economists predicted a $136.5 million surplus for the current fiscal year, which ends June 30. That forecast, which calls for total revenue of $9.007 billion this year, is down by $1.2 million from the October prediction.

In the final forecast for the next two fiscal years — which Gov. Steve Beshear and the legislature will use to write a two-year budget — revenues improved over the October prediction.

For fiscal year 2013, which starts July 1, 2012, the revenue estimate is $9.2 billion, an increase of almost $50 million from the October estimate. For fiscal year 2014, the revenue estimate is $9.5 billion, an increase of a little more than $100 million from the October estimate.

Considering uncertainties in the global economy, members of the Consensus Forecasting Group decided to go with an economic model that calls for modest revenue growth. Central Europe’s debt crisis and other economic instabilities are still creating question marks for the U.S. and Kentucky economies, economists said Wednesday.

“We still have these huge policy uncertainties,” said David Wildasin, a professor at the University of Kentucky.

Sen. Robert Leeper, an independent from Paducah and chairman of the Senate budget committee, questioned whether the group was being too optimistic in its forecast. The state’s monthly revenue receipts have not shown improvement since the group last met in October.

“It seems a rather risky estimate for uncertain times,” Leeper said. “Regardless, balancing the budget will remain a challenge.”

State Budget Director Mary Lassiter told the House in a briefing on Tuesday that although there may be modest revenue growth, the state still has long-term budget problems. To make ends meet over the past three years, the state has relied on one-time fixes and federal stimulus dollars to balance its books.

Beshear may give more details about his budget in his State of the Commonwealth speech on Jan. 4. Lassiter said Tuesday that Beshear will not propose any broad-based tax increases or base his budget on the expansion of gambling.

That will mean more belt-tightening after nine rounds of budget cuts over the past four years, she said.
“It will be the most difficult budget we will face,” Lassiter told the group.

The state’s expenses continue to increase. The state must pay more into its ailing pension fund and also must fund other obligations made in previous legislative sessions, such as paying for an overhaul of the K-12 testing system, said Rep. Rick Rand, chairman of the powerful House budget committee.

Rand told House members to also expect more funding requests for construction projects after three years of little or no money for big ticket items.

House Speaker Greg Stumbo, D-Prestonsburg, said Wednesday he was glad revenues were still on track for a surplus this year. The state was able to deposit about $121 million in its rainy day fund last fiscal year, more than any other state and the largest one-time deposit in the state’s history.

“While writing the next two-year budget will not be easy, I believe today’s report by the Consensus Forecasting Group indicates that we will not have to make the drastic decisions we have seen in many of our sister states,” Stumbo said.

Also on Wednesday, long-time Consensus Forecasting Group Chairman Larry Lynch told the group of seven economists that he will retire from his position at the end of the year so he can travel more.

Lynch, a retired Transylvania University economics professor, has helped the state predict revenues since 1974. Lynch first worked as a consultant for the legislature and then later as a forecaster for the Consensus Forecasting Group.