by Tom Loftus , The Courier-Journal –

FRANKFORT, Ky. – Kentucky’s budget director is predicting the state will suffer a $113 million revenue shortfall when the state’s fiscal year ends June 30.

The new projection by state Budget Director John Chilton means the state’s precarious budget outlook is a bit worse than expected and will likely bolster Gov. Matt Bevin’s push for a special legislative session to reform the state tax code and pension system.

If the projection proves accurate, it will require Bevin to direct budget moves to assure that – as required by the Kentucky Constitution – the fiscal year ends with a balanced budget. However, a $113 million shortfall from $10.6 billion is not so deep as to require drastic spending cuts – particularly because the state “rainy-day” fund will provide some protection.

Chilton made his projection late Monday in a quarterly economic and revenue report posted on the budget office’s website. The report said tax receipts to the state General Fund fell 3.2 percent during the third quarter of this fiscal year compared to the third quarter of the prior fiscal year. And through the first nine months of the fiscal year, revenues have grown at just 1.2 percent compared to last year, although the state budget requires a growth rate of 2.7 percent, Chilton reported.

Though some recovery is expected in the final quarter, Chilton’s report projects “a current-year revenue shortfall of $113.2 million” on June 30.

 

The General Fund collects revenues from most state taxes and pays for most state programs including education. The report blames the projected shortfall on weaker-than-expected performance so far this year of the two biggest taxes: the individual income tax revenue grew at 2.4 percent through the first three quarters, and the sales tax grew by just 0.6 percent.

The General Assembly sets rules for Bevin to follow in taking steps to balance the budget. And in such situations, governors can tap the state’s reserve “rainy-day” fund, which currently has a balance of about $235 million. However, one rule lawmakers put into the state budget is a provision that no more than 25 percent of the balance of that reserve fund be used to help balance the state budget at the end of this fiscal year.

While a $113 million shortfall can likely be met without much immediate pain, it adds urgency to concerns over the state’s revenue outlook and strengthens Bevin’s case for the need for tax reform.

 

The governor has said he will call a special legislative session for later this year to address both tax reform and pension reform. Bevin has said the unfunded liabilities of state pension funds (officially reported $38.7 billion, but Bevin says the outlook is much worse) present a major financial crisis and both the tax system and pension system must be reformed to address it. Bevin has not specified when he plans to call the session later this year.

Monday’s quarterly report had better news for the state Road Fund. This fund, which collects revenues from the gas tax and sales tax on vehicles and spends it on road maintenance and other transportation needs, is projected to take in $1.5 billion this fiscal year, about 1.2 percent more than the current-year budget requires.

Reporter Tom Loftus can be reached at 502-875-5136 or [email protected].