State revenues continue to inch up, though ever so slowly.
Receipts for the state’s General Fund were up two percent last July over July 2012, giving us a good start for collections in the new fiscal year that began on July 1. If everything goes as planned, we should end fiscal year 2014 with 1.9 percent (or greater) revenue growth over fiscal year 2013.
State Budget Director Jane Driskell is confident in that estimate.
“Despite continued weakness in sales and use and coal severance tax collections, we are comfortable that our total General Fund revenues will be consistent with the official budget estimates,” she said in a recent news release.
General Fund performance for the past five or so fiscal years seems to back that statement up. According to a report giving by the Governor’s Office for Economic Analysis to the Consensus Forecasting Group (the state’s independent panel of revenue forecasters), fiscal year 2013 was the third consecutive year for General Fund revenue growth for Kentucky after negative revenues in both fiscal year 2009 and 2010. General Fund revenues last fiscal year were 0.4 percent, or $40.5 million greater than the official estimate forecast at 2.4 percent, allowing us to end last fiscal year with 2.8 percent growth. Fiscal year 2012’s collections exceeded expectations by 0.9 percent, or $83.3 million.
This growth is modest, but it is positive growth, calming fears shared in late 2011 that our state could be facing a double-dipped recession.
That’s not to say that all fear has passed. Both the state’s sales and use tax and coal severance tax revenues have been waning, leading to very real concerns for state agencies and state lawmakers. Sales tax is the state’s second largest source of General Fund revenue, so any decline there is worrisome. Coal severance revenue—which fell by between $70 million to $230 million, according to state budget officials—is a critical funding source for infrastructure and economic development in coal counties, which have already seen huge job losses in the mines in recent years. So, naturally, there is real concern there, too.
That takes me to the million-dollar question which is, will Kentucky have a state budget gap to fill in the next budget cycle and, if so, how big will it be?
We do expect there to be some budget gap in the next budget, although we do not yet know what it will be. It is hoped that revenues will increase over the next several months so we don’t have to enact massive reductions like the 8.4 percent required of most state agencies last fiscal year. Our agencies and services have seen their budgets collectively slashed by $1.6 billion since 2009 when the first enacted budget reduction of the “Great Recession” took effect. No one wants to go there again.
But we are facing some extraordinary circumstances that modest General Fund growth probably won’t be able to fix on its own.
We must, to avoid breaking pension laws that we passed years ago and the state pension system, fully fund state employee pensions to meet what is called the “ARC” (actuarially required contribution) in each budget cycle. The ARC amounts to $100 million to $120 million a year which will be paid with revenue provisions approved during the 2013 Regular Session with passage of House Bill 440.
We will also have to find money for programs left unfunded because of federal “sequestration”—those automatic federal spending cuts totaling around $85 billion nationwide this year and as much as $1.1 trillion through 2021. In Kentucky, the impact of sequestration is significant; more than $200 million will be cut from education, military readiness, and other key services like law enforcement, public safety, and substance abuse treatment in the Commonwealth in this year alone, based on federal data.
If Congress had acted to stop sequestration before its March 1 deadline, we wouldn’t see what we are seeing now: The anticipated loss of around $11.8 million for primary and secondary education in Kentucky this year alone; Elimination of Head Start for hundreds of Kentucky children because of lack of funds; Around $122 million in cuts in Army base operations in our state, etc. But of course Congress did not act, so here we are.
How well the economy performs, and when Congress finally acts, will determine just how rough sequestration turns out to be.
Next week is our redistricting special session which you’ve been hearing about in the news for a few months. This is the special session called by Gov. Beshear to draw new district lines in the state House and Senate based on population changes recorded in the 2010 census. I will be reporting on that in my next article. Until then, I hope the children are having a great start to the new school year and everyone is enjoying the end of summer.
Have a great week.