Governor Beshear Addresses Budget Shortfall For This Fiscal Year and Projections for Next Two Fiscal Years

Dec. 27, 2007
Governor Steve Beshear today announced that the Commonwealth’s financial condition, as discovered upon his taking office December 11th, is much worse than anticipated.
“We are confronted by three very significant problems,? the Governor explained. “First and foremost, between now and the end of June, the state will not have enough money to pay its bills and maintain a balanced budget.?
Projected revenues, or income, will not sustain current spending levels. The shortfall is approximately $434 million.
In fact, last week the Consensus Forecasting Group reported the downward revisions of revenue for this fiscal year.
“The report indicated that the Commonwealth’s revenues will be approximately $120 million less than budgeted,? said Mary Lassiter, State Budget Director. “The revenue shortfall in the current year is of great concern.?
“The enacted budget was based upon assumed revenue growth of 4.5% over the last year,? Governor Beshear said. “However, revised estimates now predict revenue growth of less than 1% — as a matter of fact, only eight tenths of a percent for this fiscal year.?
Secondly, insufficient revenue is anticipated during the next fiscal year. Last October’s estimate for the next two fiscal years calculated revenue growth of just 2.4% in FY 09 and 3.6% in FY 10.
“These estimates will be revisited in January,? said the Governor. “However, we expect more bad news. The economic outlook has become worse since this past October. Therefore there could be a decline in earlier numbers.?
When it comes to spending, several areas of state government have experienced further expenditures since the enactment of the present budget.
More than $166 million of additional spending authority has been requested in the current fiscal year by various state agencies to maintain their program and service levels.
“Most notably and despite claims last summer that the Medicaid budget was balanced, the truth is otherwise,? explained Governor Beshear. “We are facing a current year shortfall of $389 million. About a third of that comes from General Funds.?
“We must find additional dollars for our Corrections Department,? he added. “Moreover, several other areas of state government, including Mental Health/Mental Retardation, State Police, Parks and Public Advocacy face challenges we must address.?
An additional $138 million in spending previously authorized by the General Assembly, but not accommodated in the present budget, must also be addressed.
The third problem is structural. A structurally balanced budget refers to the ability of recurring revenues to meet recurring expenses.
“Relying on one-time funds to balance the budget is risky business,? explained Beshear. “Although most budgets have some one-time funds in them, unfortunately, the enacted budget for this fiscal year relies on more than a half billion dollars in one-time funds – most of which won’t be available next year.?
“In situations such as this, we hope future revenue growth will prevail,? Beshear continued. “Unfortunately, this does not seem to be in our future for at least the next two years. Projected revenue growth will not meet our current spending levels.?
Aside from the structural deficit, the Commonwealth’s current budget situation is faced with the following:
*                     a national economic downturn;
*                     subprime mortgage difficulties affecting our housing industry and durable goods manufacturing;
*                     the lowest state employment growth in several years.
“We are facing nothing short of a budgetary crisis for the coming biennium,? said Governor Beshear. “Although the construction and evolution of this problem occurred before I was elected, it is my job to solve it. We’re setting about to do exactly that.?
“The Governor will exercise his authority and responsibility to balance the budget for the current fiscal year as prescribed in the enacted budget through a Budget Reduction Order next week,? Lassiter said. “He has asked state agencies, the Department of Education, the postsecondary education community and the other branches of government to develop budget reduction plans to help address the shortfall. Support Education Excellence in Kentucky (SEEK) and health insurance for school districts are exempt from the reduction analysis.?
The specific budget reduction actions will be announced on January 4th. “The additional current year spending that is needed to sustain certain programs, including Medicaid, will be addressed as part of the Governor’s recommended budget to the General Assembly,? Lassiter added.
The Governor stressed that in finding resolutions for the unfortunate budget quandary facing the Commonwealth, his utmost priority is sustaining essential services – especially among the most needy among us.
“Concurrently, public safety, government efficiency and other factors bearing on what is best for all Kentuckians will dominate our decision-making,? Beshear said.
*                     Listen to audio of Governor Beshear Address Budget Shortfall. [MP3 - 715KB]
See video of Governor Beshear Address Budget Shortfall. [WMV - 3.05MB]

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