KENTUCKY YOUTH ADVOCATES - Press Release

For Immediate Release

October 30, 2008

Contact:

Brigitte Blom Ramsey

502-895-8167 ext. 114

Terry Brooks

Cell: 502-235-2396

Kentucky’s Revenue Faces Additional Shortfall

Budget Vulnerable to National Economic Downturn

Louisville, KY –Kentucky’s quarterly revenue receipts released this afternoon by the State Budget Office reflects the financial strain Kentuckians have been feeling for some time. Both of the major state funds have a significant shortfall. As a result, the state will have to revisit the current budget and make further cuts or identify areas for increased revenues. In the meantime, the state should use its rainy day fund rather than exacerbating the problem by cutting services.

“By all accounts it is officially raining in Kentucky,” says Terry Brooks executive director of Kentucky Youth Advocates. “Belts are already tight and vulnerable families cannot tighten anymore. So now is the time to use the Rainy Day Fund.”

Last year Kentucky’s economy remained relatively strong while most of the rest of the nation faced an economic downturn.  In fact, last year Kentucky managed to maintain a solid 2.3% growth in GDP while growth in all of the adjacent states, and the nation as a whole, declined.  

Unfortunately, Kentucky’s budget may soon be feeling the grip of the national recession as well.  The First Quarter 2008 revenue receipts issued by the Kentucky Office of the State Budget Director foreshadow a grim revenue forecast for the remainder of Fiscal Year 2009.  Among the highlights of the First Quarter revenue report were the following:

• A 3.3 percent shortfall in General Fund revenue; largely funded by the state income tax, which increased by 6.6 percent over this time last year.  However, gains in the income tax receipts were largely offset by losses in corporate income taxes, down 48.4 percent  compared to First Quarter 2008. 

• A 5.3  percent shortfall in the Road Fund; largely funded by the motor fuels tax, down 1.4 percent and tax on vehicle sales, down 9.2 percent over this time last year.  Both declined because of decreased demand. 

If the decline in revenue persists, the General Fund is expected to have a shortfall of $293.6 million.  This is a significant shortfall considering the assumption made in balancing the state budget was a 2.6 percent revenue increase.  

Unlike the federal system, Kentucky must balance its budget.  When faced with a revenue shortfall, states must either cut back on spending or raise taxes.  Kentucky’s legislature chose the later and cut spending in nearly all areas of government.  The result – cost shifting to the citizens of the state in the form of higher costs for services, public sector unemployment, and increased local financial burdens.  Consider the following:

• Higher education tuition increases of 6 to 10 percent were approved by the Council on Postsecondary Education because of the cut in funding to our colleges and universities.

• More than 1,000 staff members were cut from Kentucky public schools.  Due to the state budget shortfall the majority of school districts across the state had to reduce staff.

• Unemployment in the state is currently at 7.1 percent up from just over 6 percent in the spring of 2008.  Early in the summer it was reported that Kentucky had lost more than 4,000 non-farm jobs. 

Governor Steve Beshear is already considering the ramifications – cut more services and/or raise revenue.  It appears the legislature will have three options: dip into the budget reserve trust fund, a.k.a. Rainy Day Fund, to cover immediate costs; raise taxes either temporarily or indefinitely; or revisit the existing budget with an eye on additional cuts to an already scant package. 

“In the spirit of stability for the whole of the Commonwealth, Kentuckians cannot endure further cuts,” says Brigitte Blom Ramsey, policy analyst at Kentucky Youth Advocates. “Additional cuts will only prove to further erode employment levels, further compromise the stability of our education system, and leave tax payers without the human services necessary to sustain their quality of life.”

“Certainly, the time has come to use the Rainy Day Fund as it was intended and to seriously consider sustainable revenue streams for the future,” says Brooks.  

Kentucky Youth Advocates is a non-partisan, non-profit, children's advocacy organization. KYA represents a voice for Kentucky's most precious asset – its youth.  We believe that Kentucky's youth deserve the opportunities and resources necessary to ensure their productive development and health.