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Economists’ panel says state will face a budget shortfall of $155 million, less than originally forecast

By Tom Latek
Kentucky Today

Kentucky taxpayers are looking at a shortfall of more than $155 million after a panel of state economists revised the state’s official revenue forecast Friday.

The panel predicted a smaller deficit because Kentucky collected more tax money than it had expected in the past three months.

In August, the Consensus Forecasting Group issued a preliminary estimate predicting a shortfall of $206.2 million. Republican Gov. Matt Bevin responded by asking for budget cuts of 17.4 percent from most state agencies.

State economists are predicting a $155 shortfall for Kentucky, adjusting from $206 million in August. (Kentucky Today/Tom Latek)

The cuts would cover the deficit and replenish the state’s savings account, also known as the Rainy Day fund.

State Budget Director John Chilton’s staff gave members a review of the state and national economic outlook from the economics organization Global Insight, as well as first quarter General Fund receipts to the state. They included forecasts with optimistic, control (middle case) and pessimistic scenarios.

While at least one member of the CFG expressed an initial preference to keep the forecast at the August figures, after a short discussion they agreed to the scenario that included the receipts from the first quarter of the 2018 fiscal year.

The group also heard presentations on the Road Fund, and were given optimistic, control and pessimistic scenarios on that as well.

CFG Chairman Dr. Frank O’Conner, a professor of economics at Eastern Kentucky University, explained why there was a slightly better outlook.

“The labor market is doing better, incomes are steady, the economy is moving along, not spectacularly, but it’s growing at 2.5 percent.”

As for why they kept the pessimistic scenario, O’Conner said: “There’s uncertainty out there about whether we’re going to have tax reform or just some tax cuts,” he said, also citing volatility in Washington.

Chilton had sent a letter to all state agencies on Sept. 8, directing them to submit a plan to reduce spending by 17.4 percent to help avoid a budget shortfall, and to add $200 million to the state’s Rainy Day fund.

With the additional $50 million forecast in receipts, he was asked what effect that may have on cuts.

“It’ll go down,” he said. When pressed for an amount, Chilton responded, “It may be below 17 percent.”

Attorney General Andy Beshear has said orders in spending cuts can only be made in the case of a deficit, not to shore up the Rainy Day fund. Chilton quickly added, though, “It doesn’t mean we can’t restrain spending more money.”

This forecast will only be in effect for two months, since the CFG issues one in December, to help the governor in formulating his biennial budget.

The Consensus Forecasting Group, which was created by law, is made up of economists from Kentucky colleges and universities, as well as the private sector.

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