Unfunded Rainy Day
After campaigning that tax increases were a last resort, Governor Beshear has once again started to talk about how he wants to raise taxes in Kentucky. His current talking point is a projection by the Consensus Forecasting Group that revenues will fall $294 million short of projected spending in the current fiscal year.
Certainly, there is a downturn in the economy. It is for just this sort of economic moment that the state has a Budget Reserve Trust Fund, commonly known as the "Rainy Day" fund. The idea is that in good financial times, the state reserves revenue in this fund so that those funds can be available in more difficult times.
When the state had surpluses, Governor Fletcher built the Rainy Day fund from $0 in 2002 to $231 million when he left office in 2007.
So why doesn't Governor Beshear apply this reserve to his current rainy day?
Because he and the legislature already plan to spend it. In the enacted 2008-2010 budget, they spend $208 million out of the fund, with $191 million of that spending planned for FY 2010.
The Rainy Day Fund should be a resource for unexpected reductions in revenues. Instead, the Governor and General Assembly planned to bankrupt the fund, which is one of the reasons credit agencies cited when they reduced Kentucky's credit outlook.
