Daily Independent (Ashland, KY)

December 19, 2013

State expected to have moderate growth in next 2 years

By RONNIE ELLIS
CNHI News Service

FRANKFORT — The state will see moderate growth in revenues over the next two years, according to the group of outside economists who develop the projections, but not quite as much as they’d hoped when they last looked at the numbers in October.

The Consensus Forecasting Group – independent economists who advise the General Assembly on expected revenues before each budget cycle – said Thursday it expects the state General Fund to grow by 2.6 percent in each of the next two years.

That works out to about $246.2 million more next year than what is budgeted for the current year, which ends on June 30, 2014, and about $252.3 million more the following year.

That assumes total revenues for the General Fund of $9.79 billion next year and $10.04 billion in fiscal year 2016.

But the growth isn’t expected to keep up with demands, according to the governor’s budget office. Lawmakers have committed to putting at least $100 million new dollars into the employee pension fund while the teachers’ pension fund is looking for $400 million more next year. On top of that, the current budget was balanced by using some non-recurring funds which will also have to be replaced with new money in the next two-year budget. Medicaid costs are also expected to grow.

Lawmakers convene on Jan. 7 for the biennial exercise in crafting a state spending plan for the following two years, and they do so after having cut out $1.6 billion from the budget in the past six. That’s left public schools, universities and nearly every cabinet, state agency and department asking for more money next year.

Gov. Steve Beshear said earlier this week he wants to boost funding for education which has remained flat for five years as well.

Some of the revenue growth is attributable to tax changes made in the last session of the legislature rather than economic growth – about $100 million of the new revenue comes from those changes.

CFC Chairman Frank O’Connor, an economics professor at Eastern Kentucky University, said the economy is producing “just moderate economic growth, it’s not robust.”

But he also said during the panel’s discussions the political situation in Washington has calmed down which leaves him more comfortable with the projections.

The road fund is expected to fall to $1.54 billion next year, a 2.3 percent decrease, and then grow slightly to $1.55 billion in 2016.

There was also more bad news about the coal economy. The General Fund will likely receive $5 million less in coal severance taxes based on plans to close Kentucky Power Company’s Big Sandy generating plant’s coal-fired units. The plant will replace that power with power generated in a West Virginia facility it is purchasing half interest in and eventually converting one Big Sandy unit to natural gas.

Dr. Thomas Jones of the Governor’s Office of Economic Analysis said coal producers who have previously supplied Big Sandy with coal have been unable in a depressed coal economy to replace those sales through contracts with other buyers.

He said he’d spoken with owners of nine eastern Kentucky coal mines, five of which supply Big Sandy, and all of which are likely to close down by the end of fiscal year 2014.

Lottery revenues would have remained more or less static had the Lottery Board not decided to offer a new Keno game. That’s expected to raise lottery revenues to $237 million next year, an increase of about $13 million. That will grow another $12 million in 2016.

RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.