State sees some good, bad budget news

FRANKFORT, Ky. (WTVQ) – Kentucky will close out the budget year that ended June 30 in the black, despite the impact of the coronavirus and dire predictions otherwise.

However, the predictions for the current budget year still hold true and could be “devastating” without some kind of action by Congress, Gov. Andy Beshear said Wednesday during his daily briefing.

On May 22, the state’s budget forecasting contractor predicted a $457 million revenue shortfall for the state by June 30.

Fortunately, since then, revenues have exceeded expectations and as final numbers are being crunched this week, the state likely won’t have to enforce any budget cuts on education, public safety, health, the judiciary or legislative areas of state government, Beshear said.

In addition, the state will be able to “increase its rainy day fund 18 percent” and because of increased lottery revenues, add $15 million to the need-based scholarship fund.

The Road Fund also won’t see any budget reductions from the 2019-20 budget.

But as Congress begins debating a third round of coronavirus relief programs, the need for state and local governments is mounting. But none of the major proposals circulating in the House or Senate include significant funding for those areas, unlike a decade ago when Congress provided billions — $900 million to Kentucky alone — during the Great Recession.

“As of right now, the current budget is dire, or as dire, as the predictions were,” Beshear said, citing the $1.1 billion shortfall predicted on the horizon.

April through June revenues were down 8 percent in the general fund and 23.5 percent in the Road Fund. That trend likely will continue, he said.

If the deficit does hit $1.1 billion, it could result in the “largest budget cuts in the state’s history” ranging between 13 and 30 percent, he described.

“It’s really rough,” he lamented of the possibilities, even with state departments holding the line on spending “across the board” and even if revenues “do edge up.”

As for aid from the federal government, he acknowledged the current proposals don’t address the need, although he did praise money for schools that is being discussed as part of the plan.

“If we got the $900 million we got during the recession, we could make up the rest,” he said of the estimated $1.1 billion shortfall, adding it is difficult to plan now because coronavirus costs continue and the state may be forced to make significant cuts all at the end of the next budget year to avoid being in financial red ink.

One possible partial fix would be to give state and local governments the flexibility to use funding already received on budget needs. Current federal restrictions don’t allow local governments to make up lost revenues with those federal dollars.

The  state has received about $1.6 billion in federal aid for a number of needs and Beshear said he didn’t know how much remains.

“We’d take anything we could get right now,” he said.

Beshear credited the hard work of Cabinet leaders and state agency officials as the state’s General Fund revenues for fiscal year 2020 came in far higher than was expected only months ago. The Governor praised the administrators of all state agencies, who were asked to reduce spending by a 1% annualized amount in the last two months. He said they did better than that, by limiting hiring and holding the line on discretionary expenses without reducing levels of service.