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State Budget Director Predicts $113 Million Revenue Shortfall

Kevin Bratcher holds papers at desk during committee meeting.
Legislative Research Commission
Rep. Kevin D. Bratcher, R-Louisville, presents House Bill 3, a bill geared toward juvenile justice reform before the House Judiciary Committee.

State budget director John Chilton says Kentucky is on track to take in $113.2 million less than predicted by the time the fiscal year ends on June 30, meaning Gov. Matt Bevin might have to take emergency actions to balance the state budget.

State revenue fell by 3.2 percent in the third quarter of the 2017 fiscal year compared to last year, breaking a streak of three consecutive years of growth, according to the budget director's quarterly report.

The state constitution requires the governor to make sure the fiscal year ends with a balanced budget, meaning Bevin might have to reduce spending in some agencies or tap the state’s $209 million rainy day fund.

In 2014, then-Gov. Steve Beshear filled a $90.9 million budget shortfall through a combination of agency cuts, an infusion from the rainy day fund and other measures.

The state budget director blamed this year's revenue shortfall on weak jobs growth leading to less-than-expected revenues from the income tax and sales tax.

"In recent fiscal years, overall General Fund growth has leaned heavily on the largest two taxes, individual income and sales," Chilton writes in the report. "Weaker [income] withholding growth, coupled with the FY17 slump in the sales tax, have combined to depress overall revenue collections."

Income tax revenue grew by 2.4 percent through the first three quarters of the fiscal year and the sales tax grew by just 0.6 percent according to the report.

The report could be a boost to Bevin’s argument that the state needs to revamp its tax code.

Bevin says he wants to call lawmakers back to Frankfort to negotiate tax and pension changes later this year and has signaled he wants to shift the state away from being dependent on income taxes and more dependent on consumption like sales or property taxes.

Meanwhile the state's road fund is in slightly better shape than predicted. Revenues going into the road fund are expected to be 1.2 percent more than last year -- $44.2 million more than predicted.

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