Will Kentucky Reach July with a Budget Surplus?
If revenues continue at their current pace, we should.
Since the fiscal year began in July we have been following the state's monthly revenue reports and pointing out the increasing unlikelihood that the state's worst-case-scenario budget projection of a $456 million shortfall would be met.
October, November 1 2, December 1 2, January, February, March
March revenue numbers are now in, and revenues versus last year for the month and for the year are even. This means that, the entire $265 million projected decrease versus 2008 will have to be realized in the last quarter of the fiscal year. As State Budget Director Mary Lassiter notes:
To meet the revenue estimate, receipts would need to decline 9.6 percent over the last three months of the fiscal year.
Still, it is difficult to predict exactly what the final revenue outcome will be. We wrote last month:
In 2008, March through June were quite volatile year-on-year, with a 5% decrease in March, a 36% increase in April followed by a 21% decrease in May.
Additionally, the Cigarette and Alcohol tax hikes kicked in this month. These tax hikes were estimated to result in an additional $52 million in revenue this year.
On the spending side of the ledger, remember that the Governor committed to $147 million in reduced spending.
Additionally, HB 143 allows the Governor to spend $209 million of the rainy day fund and borrow $50 million from the state retirement system (both bad ideas).
So where does all of this leave the state as we enter the last quarter of FY 2009?
First, let's use the current revenue trend of a flat revenue baseline versus 2008. This would represent a shortfall of $191 million versus the revenue estimate in the biennial budget (RS08 HB 406).
Let's add to that baseline the additional $52 million from the tax increases and say that the Governor honors his proposal from December to reduce spending by $147 million.
That leaves the state with an $8 million surplus!
As we noted above, receipts from the next couple of months will be volatile. But even with the worst-case scenario (a $265 million decrease over the next three months), the legislature has given the governor $259 million of (irresponsible) extra authority.
While we can think of some good issues for a special session, the commonwealth's fiscal situation is not one of them.
