Kentucky Budget Director: New Fiscal Year Brings ‘Formidable’ Revenue Expectations

Aug 1, 2017

Credit J. Tyler Franklin

A revenue shortfall during Kentucky’s recently completed fiscal year means the state will have to make more money over the next year in order to meet expectations, state budget officials say.

The General Assembly crafts budgets every two years and since Kentucky had a $138.5 million revenue shortfall, the state needs to bring in about 3.8 percent more money over the next 12 months to satisfy goals.

In a report, the Office of State Budget Director said the shortfall has made the next year’s forecast “more formidable.”

Kentucky will have to bring in 3.8 percent more than the $10.47 billion it generated in Fiscal Year 2017, which ended on June 30, to meet expectations for Fiscal Year 2018.

But a new forecast of the first three quarters of the new fiscal year say revenue will only grow by 2.5 percent. (The forecast doesn’t make a prediction for the final quarter of the fiscal year, saying the state’s income is too volatile to estimate during those months.)

State Budget Director John Chilton says the challenge shows Kentucky needs to change the way it makes money, shifting away from a revenue system that relies so heavily on income and sales taxes.

“The two largest General Fund taxes (individual income and sales and use) constitute over 75 percent of the General Fund,” Chilton wrote in the report. “When one (or both) of these revenue sources fails to keep pace with economic growth, the remaining taxes have been struggling to pick up the slack.”

Gov. Matt Bevin has for months promised to call a special legislative session later this year so that the Republican-led General Assembly can modify the state’s tax code, though he hasn’t officially declared the special session or announced when it will take place.

The governor is the only person authorized to call a special session.

In addition to the $138.5 million revenue shortfall, the state spent more than it took in during the fiscal year. Bevin made a combination of spending cuts and fund transfers to fill the more than $152 million budget shortfall.

Overall, the budget director had an optimistic depiction of the nation’s economy — the U.S. economy is in its ninth year of expansion, the third longest on record, and the 4.4 percent unemployment rate is the lowest since 2001.

He expressed hope that President Donald Trump’s administration and the Republican-led Congress would push for legislative initiatives like “tax reform, reduced regulatory burdens, and increased infrastructure spending.”

But Chilton also said “political turmoil and legislative stalemates” might hamper those plans.