Spending cuts, special session likely to address state budget shortfalls

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FRANKFORT, Ky. (WTVQ) – The state is bracing for a $456.7 million – or 4 percent – General Fund revenue shortfall and a nearly $162 million shortfall in the state Road Fund this fiscal year, based on revised estimates from the group responsible for the state’s revenue forecasts.

Gov. Andy Beshear said Friday he already has begun discussions with Cabinet leaders about the best ways to make cuts to offset the red ink.

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He and legislative leaders also are discussing a special session to adjust the numbers.

Beshear acknowledged some services may have to be cut and even jobs trimmed, especially since the cuts have to be made to balance the books by June 30 when the current budget year ends.

“We are discussing ways to make adjustments to minimize the impact on people,” Beshear said, adding he is having discussions with legislative leaders about a “short, targeted session to adjust the numbers.”



The governor said he still hopes Congress will approve another round of relief providing funding for state and local, governments covering revenue and budget shortfalls, much like Congress did more than a decade ago during the Great Recession.

“We’ve seen a little movement in that direction,” Beshear said of discussions between governors and leaders in Congress.

“I would hope we would do an infrastructure program,” Beshear said, noting the need to “repair our roads and bridges” and “put people to work.”

The Consensus Forecasting Group — a panel of independent economists whose forecasts are used in state budget decisions – revised its estimates for both funds for Fiscal Year 2020 at the request of State Budget Director John Hicks.

Hicks requested the revisions in an April 30 letter amid economic disruptions tied to the COVID-19 pandemic.

State budget officials told the CFG  the projected General Fund shortfall can be addressed through a budget reduction plan. That plan was included in the enacted FY 2020-21 Executive Branch budget found in 2020 House Bill 352, according to Office of the State Budget Director official Greg Harkenrider.

Budget reduction plans can be used when an “actual or projected” General Fund or Road Fund shortfall is 5 percent or less below the official enacted estimate approved by the Kentucky General Assembly, said Harkenrider.

With the projected Road Fund shortfall for fiscal year 2020 expected to fall 10.4 percent below the official enacted estimate, that shortfall would not fall under the enacted budget reduction plan in HB 352.

It must instead be addressed by future action of the General Assembly, said Harkenrider.

That could precipitate the need for the Governor to call lawmakers into special session “given (that) there is less than six weeks left in FY 20,” he told the panel.

The revised estimates agreed to by the CFG were based on “pessimistic” scenarios that anticipate steep declines in consumer spending, real GDP, manufacturing employment, and other key economic indicators – a reflection of the current national recession, which OSBD official J. Michael Jones, PhD said began the third quarter of this fiscal year.

Although the recession is only expected to last for three quarters, Jones said overall recovery time is expected to be “significantly longer” than in more optimistic scenarios.

Kentucky’s General Fund collections were up 6.4 percent in the third quarter of Fiscal Year 2020 with year-to-date General Fund growth of 3.9 percent after March. That growth fell 1.2 percent after April, according to the OSBD. Total receipts fell 33.6 percent for April, a decline of $432.9 million, the agency reports.

For the Road Fund, the revised estimate largely reflects April receipts in motor fuels, motor vehicle usage revenue, and motor vehicle license revenue.  Motor fuels receipts fell $7.5 million, or 11.8 percent, while motor vehicle usage receipts dropped $29.9 million or 60.1 percent per the OSBD. Receipts for motor vehicle licenses fell 20.2 percent.

The revised revenue estimate for the state’s General Fund for FY 2020 is $10.9 billion, down from the official enacted estimate of $11.4 billion. The revised revenue estimate for the Road Fund for FY 2020 is $1.39 billion, down from an estimated $1.55 billion in the official enacted estimate.