Creating the Shortfall
This week, Governor Beshear plans to increase his projected budget shortfall so that he can go try to raise taxes. The Consensus Forecasting Group (CFG), "a panel of independent Kentucky economists who determine revenue projections for the state," is now in on the deal.
The CFG has a tough job in trying to predict the future of state revenues. Usually they are very accurate despite the number of different taxes and fees that make up state revenues. On Friday, "A group of leading economists" (the CFG) "told state budget officials Friday to change state revenue projections based on the “worst case scenario” for the economy." This deliberate decrease in the amount of projected revenue for the state will fulfill the Governor's prophesy/need for a projected shortfall.
We have described how, despite current economic troubles, state revenues are up $20 million versus last year and how the budget cuts spending $120 million versus last year. Looking at the last CFG report and the revenue report for October, we find that income tax receipts were up 6.6% in the first quarter and 8% in October, this despite rising unemployment in the state. Yet the forecast for income taxes for the year says:
The interim forecast for the individual income tax calls for a decline of 4.7 percent for the remainder of FY09, amounting to collections of $2,535 million in the final nine months. The individual income tax grew by 6.6 percent in the first quarter of FY09, and is expected to decline by 4.7 percent during the remainder of the fiscal year. Further weakness in employment, wages and salaries, and weak aggregate demand all contribute to the lower forecasts. For the entire fiscal year, individual income tax revenues are projected to decline by 2.1 percent.
I can't dispute the expected "weakness in employment, wages and salaries," etc., but the fact remains that they are already weak and revenues are up anyway. I'd like the discrepancy of the first four months personal income tax receipts explained more thoroughly before I entertain any "worst case scenarios."
