Kentucky is facing a $91 million budget shortfall, and one of the driving factors is a decline in a form of income primarily used by the nation’s wealthiest individuals.
In 2012, the U.S. Congress was preparing to take the country over the “fiscal cliff” over rising debt, rising healthcare costs, and spending on the wars in Iraq and Afghanistan. To reduce the deficit, President Obama proposed raising the federal capital gains tax, which largely impacted the nation's wealthiest, prompting a massive sell-off by 2013.
As a result, state budget forecasters anticipated a repeat of such revenue on what was essentially a one-time occurrence.
“All states knew of this change, and they made adjustments in their revenue estimates, but it was a much larger impact nationwide than states planned for,” said Kentucky State Budget Director Jane Driskell.
Driskell says there is no need for a special legislative session to address the shortfall. Governor Beshear could issue a budget reduction order to balance the state’s coffers.
Recent state revenue receipts show that Kentucky’s real income is falling short of projections and will lead to a multi-million dollar budget shortfall.
State Budget Director Jane Driskell says the state will have to raise revenues by about 12 percent to make up for a nearly $28 million hole that could grow larger if revenues continue to underperform.
But Gov. Steve Beshear, who championed a restoration of education funding during this year’s General Assembly, says if spending cuts need to be juggled to make up for the shortfall, education spending should not be disrupted.
“I can assure you this: The investments that we are making in the next two years in things like education of our kids are not going to be touched," said Beshear. "We’re not going to interfere with what great steps we have taken to move education forward in Kentucky.”
Beshear says his administration is unsure just how big the shortfall will be, but promised that the budget will ultimately be balanced.
Kentucky officials said Tuesday the state will likely end the 2014 fiscal year with a multimillion-dollar shortfall.
Gov. Steve Beshear will have to make budget cuts to balance the budget. House budget chairman Rep. Rick Rand said the governor would likely not call the legislature back for a special session.
State officials won't know the size of the shortfall until next month. But with state revenues falling 2.1 percent in May, Kentucky would need an 11.7 percent increase in June to avoid a shortfall. The fiscal year ends June 30.
State Budget Director Jane Driskell blamed the shortfall on individual income tax collections. The state's largest source of revenue has grown by 0.5 percent this year. State officials expected it to grow by 2.4 percent.
Kentucky's general fund tax revenues increased 2.4 percent in March - enough to ward off a deficit but not enough to promise a surplus.
State Budget Director Jane Driskell announced the state collected $753.5 million in March, a $17.7 million increase from last year. State officials predicted Kentucky's revenues would grow 2.1 percent in the 2014 budget year that ends June 30. For that to happen, revenues must grow 3.9 percent in the next three months.
Driskell said she is confident the state will meet the estimate but said a surplus is becoming less likely.
Road fund revenues increased $22.8 million in March, an increase of 19.9 percent. Road fund collections must increase an additional 2.7 percent over the next three months in order to meet the estimate.
As Kentucky lawmakers kick off the inaugural day of the 2014 General Assembly, the scope of the state's dire budgetary situation is coming into focus: Legislators will have to find a way to come up with $3.6 billion to fully fund agency budget requests.
Data from the Office of the State Budget Director shows that budget requests from all three branches of state government as well as state agencies totals over $23 billion for the next two fiscal years.
The state’s general fund, however, is expected to have less than $20 billion in revenue.
The state’s budget director, Jane Driskell, has warned that budget cuts are likely.
Gov. Steve Beshear will submit his budget proposal to lawmakers on Jan. 21.