The group of economists charged with predicting how much revenue Kentucky will have in the coming budget cycle approved a very modest revenue forecast for the next budget that’s slightly weaker than the preliminary forecast released in October. The estimate confirms that lawmakers will have scarce resources to meet basic costs in the new budget unless they also generate new revenue.
Compared to the October estimate, the new forecast shows $31 million less General Fund revenue in 2014, $14 million less in 2015, and $17 million more in 2016, for a net reduction of $28 million. The forecast predicts that General Fund revenue will grow by 2.6 percent in 2015 to 9.8 billion and again by 2.6 percent in 2016 to $10 billion. That means $246 million additional dollars the first year of the new budget and $252 million the second.
Continued slow economic growth is a major factor driving the modest revenue receipts. With the economy still in recovery from the Great Recession, sales tax growth is sluggish. After several years of strong growth due to high corporate profits, the forecast expects corporate income tax receipts to grow slowly and then decrease as businesses begin re-investing profits in production. Revenue from coal severance, cigarette, and limited liability entity taxes are expected to level off or even decline.
The $246 million in new revenue for 2015 won’t be enough to cover even basic costs in the budget much less re-invest in education, health, human services and other areas that have been cut deeply in recent years. The state needs $157 million to fill the hole created from the use of one-time money in last year’s budget, $100-$120 million to make the full payment to the state employees’ retirement system (not counting teachers’ retirement) and $100-$150 million to pay for cost growth in Medicaid.
On top of General Fund problems, as a result of a recent arbitration ruling that Kentucky did not uphold part of the Master Settlement Agreement in 2003, the state expects its 2014 tobacco settlement payment to be just $45 million, half of what was budgeted for the year. That will likely mean cuts to the agricultural, early childhood and health programs that tobacco settlement monies fund. Pending the outcome of further arbitration, the 2016 payment could also be reduced.
Kentucky’s official revenue estimate for 2014-16 casts an even longer shadow on what was already a dark outlook for the 2014-16 Budget of the Commonwealth. Without new revenue, the General Assembly will have to further cut services that Kentucky relies on to maintain our quality of life and strengthen our economy.