TheTimesTribune.com, Corbin, KY

August 16, 2013

State projects meager General Fund income growth


The Times-Tribune

CORBIN — By Ronnie Ellis / CNHI News Service

The group of independent economists who predict state revenues for the legislature is looking at a relatively modest increase of $259 million dollars in the first year of the next budget and about $533 million over the next biennium in the state General Fund.

But there’s a hitch.

In July, state Budget Director Jane Driskell told lawmakers that roughly $400 million in new revenue is needed just to cover increased payments required by pension reform legislation, medical cost inflation and replacing one-time sources of money used in the current budget to pay for recurring expenses.

On top of that, the state hasn’t funded school textbooks, teacher professional development and other educational programs for several years while holding basic school operational funding steady in spite of enrollment growth and rising costs.

A 1 percent increase to the school funding formula — SEEK — would cost $29 million and restoring funding for textbooks, professional development and school safety will cost another $64 million.

What it all adds up to is there really won’t be a lot of “new money” laying around for lawmakers to spend.

Things aren’t even that good for the Road Fund. The economists are predicting gas tax revenues will fall during the next two years.

Budget analyst Greg Harkenrider told the Consensus Forecasting Group while Kentucky weathered the “the great recession” of 2008 better than many states because of federal transfer payments like social security and other forms of assistance, it also typically is slower to recover from a recession.

CFG Chairman Frank O’Connor, Economics Professor at Eastern Kentucky University, said the economic recovery “continues to be quite sluggish.”

And while individual and corporate income taxes are rising — a sign of recovery — sales tax revenues have fallen for three of the past five years. Prior to 2008, that had happened only once since 1979, he said.

Part of the growth in the income taxes, Harkenrider said, was because of a one-time tax amnesty program that brought in about $24 million and won’t be there in the out years. And cigarette taxes are almost certain to continue declining.

Coal severance taxes have fallen each of the last three years and fell by 22 percent in Fiscal Year 2013. Budget analyst Thomas Jones predicted another 8.8 percent decline during the current year, but then he sees a “leveling off” over the next four years with much smaller declines.

Revenues for the Road Fund are expected to fall because of drivers changing gas consumption habits and a new law that reduces sales taxes on the purchase of new cars. The law, passed this year, allows the purchaser to deduct the value of any trade-in vehicle from the total price of the new car on which sales taxes are calculated.

Thursday’s figures don’t represent the final word on revenues for the next state budget. The CFG will meet again in October and December and can revise their projections at those meetings.

The figures the group settles on in December will be used by lawmakers to draw up the 2014-15 two-year budget in the 2014 General Assembly that convenes in January.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.