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Citing Political ‘Turmoil,’ Economists Predict Another Kentucky 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.

Adding to Kentucky’s financial woes, economists are predicting the state will bring in around $200 million less than originally projected this fiscal year.

The state’s Consensus Forecasting Group, a panel of economists that budget writers rely on to estimate how much money the state will make, predicted Kentucky will bring in a little more than $10.6 billion in revenue instead of the more than $10.8 billion initially estimated.

The group decided to adopt a “pessimistic” forecast of the state and national economy—based on the possibility that political fighting might continue to stymie Congress and  consumers and businesses would react negatively.

Panel member Chris Bollinger, an economics professor at the University of Kentucky, said prolonged political deadlocks will likely keep Washington from passing big tax reform and transportation initiatives any time soon.

“I’m not seeing personally the likelihood that we’re going to get large changes in corporate tax structure out of Washington anytime in the next 12 months,” Bollinger said.

The group will meet twice more this year before setting a final estimate in December. Michael Jones with the State Budget Director’s office said there might be last minute changes to the prediction.

“We could be here in December watching Twitter to see what’s going on,” Jones said.

Lawmakers will return to Frankfort in January to begin the months-long process of writing a two-year state budget based on the group's revenue predictions.

Kentucky had a $138.5 million revenue shortfall at the end of the most recent fiscal year—the 8th shortfall in the last 14 years. Officials blamed the poor showing on underwhelming growth from sales and income tax returns.

Gov. Matt Bevin had to make a combination of spending cuts and fund transfers to fill make sure the state’s budget was balanced by the end of the year. When all the calculations were finished, the state had spent about $152 million more than it brought in.

Bevin has promised to call a special legislative session later this year for lawmakers to rewrite the state’s tax code and try to fix the state’s ailing retirement systems—efforts to bring in more revenue and save the state money on future pension obligations.

But leaders in the Republican-led legislature have been hesitant to hop on board Bevin’s plan if it includes tax increases. Now it looks like tax reform would be dealt with in a separate session once the pension issue is dealt with.

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