Kentucky officials expect budget shortfall

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Associated Press

Posted on June 11, 2014 at 11:08 AM

FRANKFORT, Ky. (AP) — Kentucky's state budget director said Tuesday she expects the state to end the year with a deficit "significantly larger" than $28 million.

State economists predicted Kentucky would collect $9.6 billion in taxes for the 2014 fiscal year that ends June 30. As of May 31, the state has collected $8.5 billion in taxes, meaning the state would need to collect an extra $1 billion in June alone to prevent a shortfall.

The state collected $777 million in May - $16.5 million less than it collected in May last year - leading State Budget Director Jane Driskell to say a shortfall is "inevitable."

"It's been a tough time with the recession," Driskell said. "We have alerted our agencies and we are working with them to look at all possible options to address the shortfall."

Because the Kentucky constitution requires the state to end the year with a balanced budget, Democratic Gov. Steve Beshear will have to decide what to cut. It will be a familiar task for Beshear, who has had to cut $1.6 billion in state spending since he took office in 2007 because of declining state revenues.

"I don't think it's anything to be alarmed about," House Budget chairman Rep. Rick Rand, D-Bedford, said. "The governor is going to have some work to do. He has shown he is very capable of managing these situations."

Kentucky's revenues have been hurt by the declines in the coal industry. Kentucky coal companies pay taxes based on how much coal they pull from the ground. As production declines because of falling demand, so have Kentucky tax collections. Coal severance taxes are down 14.6 percent this year.

But the biggest reason for the shortfall is the general fund's largest source of revenue: the individual income tax. State officials predicted income tax collections would grow by 2.1 percent. Instead, they have grown by 0.5 percent.

"While disappointing, this appears to be a trend of poor income tax growth in several states this fiscal year," the budget office said in a news release.

Driskell also said she anticipates a shortfall in the state's road fund because of decreases in state gas tax collections. Driskell said the most recent internal estimate predicted an $11 million shortfall.

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