Ky. economists predict smaller budget shortfall

AP News
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Posted: Dec 22, 2009 7:56 AM

Kentucky's top economists, encouraged by signs of recovery, predicted Monday that financial woes plaguing the state will ease but not enough to generate the nearly $900 million needed to maintain current spending levels over the next two-year budget cycle.

Gov. Steve Beshear acknowledged that the revenue projection is "somewhat better" than it was previously, but he said Kentucky still faces a "fiscal crisis" that could lead to more cuts in services.

The state already has cut some $800 million from its budget over the past two years to eliminate revenue shortfalls.

"We will have to consider numerous options to close the gap that exists between the resources we have and the needs of our state over the next two years," Beshear said. "Kentucky families are making tough choices to get food on the table and bills paid. State government must continue to do the same."

The latest revenue projection from economists serving on Kentucky's Consensus Forecasting Group reduced the projected shortfall for the remainder of this fiscal year from $161 million to $100 million based on positive economic indicators.

"Things just seem to be looking a little better," said Lexington economist Lawrence Lynch, pointing to a slight improvement in the jobless rate in Kentucky. "We all feel a little bit more optimistic."

The Beshear administration has been preparing to whittle $161 million from the current budget based on the earlier revenue projection. The new projection should ease those cuts.

Beshear said he intends to shield the Medicaid program from decreases this year. Public schools, state universities, community colleges, and the teacher retirement system also are among a short list of agencies and programs that would be spared for now.

House Speaker Greg Stumbo the state's latest revenue forecast is a positive sign.

"It's like digging out of a hole, though," said the Prestonsburg Democrat. "While it's a step in the right direction, we still have a long way to go."

Kentucky reported 2.4 percent growth in its general fund in November, in large part because of an increase in sales tax revenue. It was the first growth in the general fund in Kentucky in nearly a year, and it came despite a 3.5 percent decrease in individual income tax revenue, one of the state's largest revenue generators.