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In Depth: Kentucky Budget Deficit Continues To Rise

Kentucky’s economic woes continue.  The current state budget deficit could be larger than anticipated and there may be even more red ink ahead.  Kentucky Public Radio’s Tony McVeigh assesses the state’s grim financial picture.                Listen Now Last month, the Consensus Forecasting Group met in Frankfort to assess current economic conditions.  The panel of economic experts that advises the governor and legislative leaders returned this week to offer its latest revenue projections, and the group continues to take a conservative approach.  After spending three hours assessing the latest revenue figures, the group is predicting a budget shortfall of almost $161 million this fiscal year.  In the next biennium, the panel’s predicting a shortfall of almost $200 million.  University of Kentucky economist Ginny Wilson, a forecasting group member, says the financial picture remains gloomy and she sees no immediate turnaround. 

 “I think that the sales tax decline might linger, because I think credit will stay tight,” said Wilson.  “And I think the lag in employment is going to keep the personal income tax – give it a little bit slow recovery – because I don’t think we’re going to have those jobs coming back as soon as we’d like.” Just how bad is it?  This bad.  Sales tax receipts have steadily declined since 2006.  Individual income taxes have been in free-fall since December 2008 and corporate income tax receipts are approaching levels not seen since fiscal 2002.  Property tax receipts are off 6% and coal severance tax receipts are at 2004 levels.  It’s bad, says Centre College economist and forecasting group member Bruce Johnson.  Johnson says consumer spending will be key to a recovery, and it’s just not happening. “Consumers are saving more,” said Johnson.  “Consumers are spending down their debt, their revolving debt and their real estate debt.  I expect that to continue.” Forecasting group Chairman Larry Lynch of Transylvania University agrees, the recovery may be coming, but it’s not here yet.  “Look at your sales tax receipts and income tax receipts,” said Lynch. “Withholding’s been very bad.  Nothing much has turned around.  Nothing much has improved.” But Lynch says there are some rays of hope.   “Since we do rely on manufacturing,” said Lynch.  “The fact that the dollar’s been getting weaker and the export picture’s been picking up.  Nationally, that should, eventually anyway, start to help us here.” The forecasting group’s most optimistic member this month is Frank O’Connor of Eastern Kentucky University.  He pushed, without success, for a slightly more upbeat forecast than his cohorts, because he believes the economy’s about to rebound. “We have hit bottom,” said O’Connor.  “But remember what we’re talking about.  The argument is about a year from now, really.  It’s what’s going to happen next July through two years after that.  And by then, I’m fairly sure that we’re definitely going to be on the upward slope.” Chairman Lynch hopes so, too, and says the next few months will be key. We’re going to look better,” said Lynch.  “But the question is, will we look better enough?” The forecasting group reconvenes in December to finalize its revenue projections for the current fiscal year and the next biennium.  In the meantime, governor’s spokesman Jay Blanton says the administration will continue looking for ways to cut spending without hurting essential services like education, health care and public safety. “The governor has said repeatedly, this is no different a process than what families are doing at kitchen tables across Kentucky every night,” said Blanton.  “They’re looking at what they can do without, or what they can cut back on, and what they have to have or have to do in order to do right by their children.  And that’s the exact same process that we’re going to continue to go through.” If necessary, Kentucky lawmakers can adjust the current state budget when they return to Frankfort January 5th for the 2010 legislative session.  That’s also when they’ll begin crafting a new biennial budget for fiscal years 2011 and 2012.

Rick Howlett is host of WFPL's weekly talk show, "In Conversation." Email Rick at rhowlett@lpm.org.