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Over the last month or so, there have been some encouraging signs that state governments are inching away from the toughest economic crisis in decades.
Combined, the states have trimmed a half-trillion dollars since 2007, but the days of cutting much more appear over, at least for now. According to the National Conference of State Legislatures, new budgetary gaps “are practically non-existent.”
Two years ago, 39 states had to make mid-year cuts, but the number dropped to 19 last year, and only four so far have said they will have to do the same during the current fiscal year.
When asked about their budgetary outlook in the months ahead, officials from 21 states said they were concerned, but none were pessimistic. The remainder were at least cautiously optimistic.
In a report last week to the General Assembly’s Appropriations and Revenue Committee, Governor Beshear’s budget officials noted that Kentucky’s state government revenues have not seen the highs and lows most states have.
Kentucky’s revenues were below the 50-state average in the 2008 fiscal year, but did not see the tremendous dip that others did in 2009. We matched the average in 2010 and 2011, but are behind as we approach the fiscal year’s halfway point at the end of this month.
A silver lining for Kentucky is that our personal income levels did not drop as much as they did in our sister states during the recession. In fact, Kentucky’s decline was only half as much as the national average, a trend that is expected to continue through the rest of the fiscal year.
At the same time, our employment rate continues to make a slow but steady climb. October was a bellwether month of sorts, as the total number of non-farm jobs across the state reached a level last seen in December 2008.
During their testimony last week, the budget officials laid out their plan to close a nearly $200 million gap, most of which was mandated by the current budget. While no one expected it to be easy, it does appear we will be able to meet projections without drastic measures.
A three-pronged approach is planned. It will come from better-than-expected revenues and savings from debt payments, plus 2 percent cuts across a portion of state government that will go on top of cuts already made. Key areas like classroom funding, corrections, parks, and Medicaid are not included. No statewide furloughs are expected, either.
Budget officials warned, however, that the next two-year budget – which will be voted on by April – will not be easy. The state’s economists are predicting relatively low growth during that time, and that does not take into account potentially steep reductions in federal spending and any repercussions from the ongoing turmoil in Europe if it turns worse.
Kentucky has been fortunate in many ways the last several years, but numerous challenges are still in front of us. As it has been for several years, the goal is to do all we can to avoid putting an undue burden on our children and our most vulnerable citizens. Like many of the state budget officials, I am “cautiously optimistic” that we can do just that.
The budget process will formally kick off about a month from now, when Governor Beshear will offer his plan to the General Assembly. I will of course keep you updated on its progress.
Rick Rand, D-Bedford, represents the 47th House District in the Kentucky General Assembly. He may be reached by writing to Room 351C, Capitol Annex, 702 Capitol Avenue, Frankfort, KY 40601, or leave a message at (800) 372-7181 – TTY (800) 896-0305.