Gov. Bevin Makes Cuts, Fund Transfers To Fill Kentucky Budget Shortfall

Jul 15, 2017
Originally published on July 14, 2017 4:20 pm

Gov. Matt Bevin has made a combination of spending cuts and fund transfers to fill a more than $152 million budget shortfall after the state didn’t bring in as much money as predicted last during the last fiscal year.

In a news release, the governor’s office said spending in the three branches of state government would be reduced by $59.3 million.

State agencies will also be required to transfer $77.3 million in restricted funds—money collected through fees, tuition or other charges—to the state’s general fund.

Bevin’s office said another $15.5 million that had lapsed or not been spent by state agencies would go back to the general fund to fill the budget gap.

Bevin did not tap the state’s budget reserve trust fund, or “rainy day fund,” to help meet the shortfall. But the governor did use the shortfall to boost his argument that the state needs to spend less money and revamp its tax code

“This year’s budget shortfall validates the need for conservative spending plans, and it dramatically underscores the critical need for fixing Kentucky’s broken pension systems and modernizing the state’s tax code,” Bevin said in a news release.

The state constitution requires the governor make sure the fiscal year ends with a balanced budget. If the state spends more than it takes in, governors sometime have to make spending cuts, shift money around or tap the rainy day fund.

Last week, the state budget director announced that Kentucky had brought in $138.5 million less tax revenue than expected, blaming it on weak jobs growth leading to less-than-expected revenues from the income tax and sales tax.

Budget Director John Chilton says the state’s revenue outlook is not looking any more promising in the coming years.

“We are expecting an ongoing challenge with revenues in the next fiscal year and the next biennium,” Chilton said. “Today’s actions by the Governor responsibly preserves the Rainy Day Fund as we prepare for the tight fiscal environment in front of us.”

Bevin says he wants a major overhaul of the state’s tax code. He’d like to shift the state from relying on “production-based” taxes to “consumption-based” taxes

That could mean reductions in income taxes and increases in sales or property taxes. Or, it could mean eliminating some tax breaks.

Bevin has promised to call the legislature in for a special session later this year to deal with tax reform and pension issues, though leaders of the Republican-led legislature have been hesitant to hop on board Bevin’s plan if it includes tax increases.

In addition to the state’s $138.5 revenue shortfall, Bevin’s office said the general fund didn’t take in an additional $5 million from the state lottery that it was counting on. This is because Bevin vetoed a portion of last year’s budget bill—sending the money to scholarships.

The governor’s office also said the state didn’t retire as much debt as expected, raising the total budget shortfall to $152.2 million.

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