Kentucky should meet revenue projections for 2012, economist says

03/29/2011 09:39 AM

Barring any unforeseen bottoming out of the economy, Kentucky should be on pace to reach the roughly $8.8 billion in tax revenue economists predicted for 2012, said economist James McCabe.

“Clearly, based upon national data and state data, and then looking just at our revenues in terms of the two primary constituents, the sales tax and individual income tax, that yep, they look good,” McCabe said.

McCabe is an associate professor of finance at the University of Louisville and one of seven members of the state’s Consensus Forecasting Group that comes up with revenue projects state leaders use to craft Kentucky’s budget every two years.

The country will likely be able to avoid a “double-dip” recession but inflation could still be a problem, McCabe said.

Part of the job of the Consensus Forecasting Group, made up of seven economists from across the state, is to change revenue projections when the economy shifts. And since 2008, the group has been convened “over and over and over again,” McCabe said to try and figure out how much the economy would affect state revenues and the budget.

“It is very difficult to catch the downturns or the upturns correctly and that is the hardest part of forecasting right there.”

Kentucky’s economy has perked up over the first two full quarters of this fiscal year, which began July 1, 2010. The state is projected to bring in $22.4 million more than initially estimated in the current fiscal year, which ends June 30.

McCabe says as long as the United States continues to recover and grow economically, Kentucky most likely will follow suit.

“We’re out of the woods if the United States is out of the woods,” he said. “One of the key things, the United States economy drives the state economy very much.”

But potential problems still loom, including oil consumption and prices.

“With the uncertainties that surround us on a national level, as we look at what’s going on in the Middle East, that’s a big question mark for sure,” he said. “It would be the high cost of oil that would carry over into other areas, and especially our food products.”

What put the country and Kentucky into the crisis?

McCabe said many people have lived beyond their means.

“One of the key reasons we went in to the financial crisis was because everybody, businesses, government and individuals borrowed too much,” he said. “And we’re in a de-leveraging process, which means either we cut back on our saving or we pay our bills or debt outstanding, so in this de-leveraging it takes away from consumption, so that slows economic growth.”


Subscribe to email updates.

Subscribe and get the latest political intelligence delivered to your inbox.