Although planning began months ago, the first official stop for what is a multi-stage process came a little before Christmas, when the Consensus Forecasting Group gave its final revenue forecast and predicted growth of about 2.6 percent annually for the next two fiscal years. Although this group of economists has to peer 30 months into the future, it is remarkable how close their predictions invariably prove to be.
Now that we know the budget’s exact size, the next step is for the governor to give his proposal to the General Assembly in mid-January, when he will lay out his priorities for the next two years.
At that point, the House of Representatives and Senate will then work until mid-April to hammer out a compromise, and once that is signed into law, the budget will take effect on July 1st.
It is important to note that when legislators talk about the budget, they are mostly referring to the General Fund, which represents about one-third of every dollar used by our schools and government agencies but drives the rest. That remainder comes from the federal government and restricted sources, such as college tuition, that must be spent by the school or agency collecting the revenue.
A breakdown of the General Fund shows that nearly 90 cents of every state tax dollar goes to three main areas: Education at 58 percent; Medicaid and other health and human services at 21 percent; and public safety at seven percent.
According to the National Conference of State Legislatures, Kentucky is in line with most states that are not expecting either significant surpluses or deficits during the current fiscal year. Interestingly, of the four states that are expected to fall short, three surround us: Tennessee, Indiana and West Virginia.
Most states, including Kentucky, have seen modest growth over the last few years, but we are still not close to where we were before the start of the recession. In fact, the National Association of State Budget Officers says that the budgets for the 50 states last fiscal year were nearly nine percent below what they were in 2008 when adjusted for inflation.
As the General Assembly readies to take on its budget duties, there are challenges and opportunities alike. The challenges include declines in coal severance funds – which are down 15 percent when compared to last year – and a potentially sizeable cut in tobacco settlement payments over a dispute Kentucky and several other states are having regarding terms of the 1998 agreement with the major tobacco companies.
There have been signs that all of the projected growth in revenues will need to go to ongoing expenses, although there is growing support to provide more for elementary and secondary education, a priority that I hope we can accomplish.
On the positive side, it appears that businesses are earning more and consumers are spending more, based on trends in tax collections.
Just this past week, meanwhile, the Kentucky Chamber of Commerce released a mostly positive report on economic conditions across the state. It found that while Kentucky’s employment levels still slightly trail where we were before the recession, Hopkinsville is one of just a few communities cited for having economies that “appear to be growing briskly.”
Understandably, the goal is to see how we can continue that trend, both locally and across the state. The more successful we are in that doing that, the easier it will be to pass a budget that can meet our needs.
As you may know, the legislative session is only about a week away. Because of that, it is more important than ever that I hear your views. If you would like to contact me, my address is Room 373, Capitol Annex, 702 Capitol Avenue, Frankfort, KY 40601.
You can also leave a message for me or for any legislator at 800-372-7181. For those with a hearing impairment, the number is 800-896-0305.
I hope to hear from you soon.
State Representative John Tilley (D-Hopkinsville) released this column on Thursday.