Preliminary revenue estimate predicting $206M budget shortfall in current fiscal year

08/11/2017 04:03 PM

FRANKFORT – After plugging a $138.5 million budget hole when the 2017 fiscal year ended June 30, the state could be forced to deal with a larger shortfall in the current fiscal year.

The Consensus Forecasting Group, which offers official state revenue projections, met Friday and set preliminary revenue estimates for the next five years, accepting the most pessimistic numbers presented by economists in the state budget office that show $10.7 billion in tax revenue in the current fiscal year. That’s $206.2 million less than the $10.9 billion expected for the General Fund in the second year of the biennial budget.

The estimates anticipate $22.2 billion in tax revenues for the upcoming two-year budget cycle that covers fiscal years 2019 and 2020.

State economists project $4.6 billion in income tax receipts and $3.6 billion in sales and use tax revenues in fiscal year 2018, $33.9 million and $130.6 million less than the Consensus Forecasting Group’s official budget estimate.

Property and corporate income tax receipts would climb slightly from the budget estimate in the pessimistic scenario to $600.8 million and $559.8 million, respectively, while limited liability entity taxes would drop $35 million to $186.6 million.

Members of the Consensus Forecasting Group voiced skepticism that federal initiatives projected by financial analyst IHS Global Insight, which helped form figures presented Friday, would come to fruition.

For example, the control, or moderate, scenario anticipates lower personal and corporate tax rates, $250 billion more in infrastructure spending and $800 billion in repatriated overseas corporate income, among other federal activities.

“Their current forecasts we’re looking at today are based on assumptions that they’ve already signaled they find unrealistic,” said Bruce Johnson, an economics professor at Centre College.

Chris Bollinger, an economics professor at the University of Kentucky, added his belief that it’s “really difficult to predict what policy changes might look like” on Capitol Hill.

“I can spin a story where the policy changes are very, very different than any of theirs (IHS Global Insight) where rancor continues and grows over the next year and a half and suddenly the Democrats are swept into office and we have a complete change in policy that’s none of the above,” Bollinger said. “Then I don’t know where we are.”

Michael Jones, deputy director for policy and research in the Office of the State Budget Director, said the group “could be here in December watching Twitter to see what’s going on” in Washington, D.C. The Consensus Forecasting Group must offer its official revenue estimates that month ahead of next year’s budget-writing session.

“The current control forecast in June absolutely assumes large infrastructure spending, absolutely assumes a reduction in the corporate tax rate to 25 percent,” Jones said.

“They had previously been assuming it would get all the way down to 20 just in the previous month’s forecast. I am confident that when we start seeing in October and December when we meet the underlying forecast will have a much more realistic forecast on those numbers.”

The revenue predictions could also be different in the months ahead as Gov. Matt Bevin has said he plans to call lawmakers back to Frankfort for a special session to consider tax reform.

The Consensus Forecasting Group also accepted the control scenario offered by economists for the state’s Road Fund, projecting in 0.2 percent decline in receipts in the current fiscal year. That would translate to $1.5 billion, $26.6 million more than the group’s official estimate.


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