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Economists Predict Deficit, Clearing Way For Bevin Budget Cuts

A panel of economists has voted to officially reduce the prediction of how much money Kentucky will bring in this year.

The move means Gov. Matt Bevin now has the authority to make budget cuts to fill an estimated $155 million deficit.

In August, the Consensus Forecasting Group initially predicted that the state would have a $206.2 million shortfall, prompting Bevin to direct most state agencies to make plans for cutting spending by 17.4 percent.

On Friday, the panel predicted the deficit would be slightly smaller--$155.6 million--because the state brought in more tax money than expected since August.

But University of Kentucky economics professor Chris Bollinger pushed for the group to keep its “pessimistic” forecast of the state and national economy.

“What we were concerned with in August—and what most of us are still concerned with…is the assumptions about policy changes in Washington that seem, how can I put this politely, unlikely,” Bollinger said.

The group predicted political fighting would continue to stymie Congress and consumers and businesses would react negatively.

The panel of economists was scheduled to officially revise the estimate in December, but Bevin’s budget director, John Chilton, asked the economists to do so this week, clearing the way for Bevin to make a budget reduction plan.

Chilton said that even though the new predicted shortfall is smaller than the one from August, Bevin’s proposed cuts could mimic the 17.4 percent initially floated last month.

“That’ll be his decision. He’s a pretty conservative guy,” Chilton said.

Chilton said he wasn't sure when Bevin would issue an official budget reduction plan.

Bevin’s initial proposal would have reduced spending by $350 million during the current fiscal year—setting aside $200 million for the shortfall and $150 million for the state’s rainy day fund.

Attorney General Andy Beshear threatened to challenge Bevin over the move, saying the governor can’t make cuts if the state doesn’t officially have an estimated shortfall.

The Louisville Courier-Journal reported that many state agencies have been slow to respond or refused Bevin’s request to plan for the cuts.

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

Bevin had to make a combination of spending cuts and fund transfers to make sure the state’s budget was balanced by the end of the last fiscal year.

Bevin has promised to call a special legislative session later this year for lawmakers to make changes to the state’s ailing pension systems, which have contributed to the state’s financial problems.