New state revenue forecast projects dramatic budget shortfalls in Kentucky amid COVID-19

FRANKFORT, Ky. — A new forecast from Gov. Andy Beshear's state budget director projects a dramatic decline in tax revenue and massive shortfalls through the end of this year, as the COVID-19 pandemic continues to wreck economies across the globe.

The report by State Budget Director John Hicks released Thursday projects a potential General Fund revenue shortfall of $318.7 million to $495.7 million through the current fiscal year ending June 30.

Revenues are then expected to fall another 10.5% to 17.2% in the first two quarters of the 2021 fiscal year, with the report containing two revenue projection scenarios based on the timing of the peak of COVID-19 cases and the relaxation of the governor's social distancing orders.

Addressing the bleak revenue forecast at his Thursday evening press conference, Beshear said the shortfall could have a significant impact on the functioning of state government into next year.

"It's education, it's public safety," Beshear said. "It's so many important programs that are absolutely critical, especially for those that are living paycheck to paycheck, trying to find that break where they can provide more security for their family."

Kentucky coronavirus updates:Follow along for the latest news

Beshear added that without federal assistance from Congress to state and local governments struggling through the crisis, "our recession will be longer or unemployment will be greater."

On that topic, the governor added that he had spoken to Senate Majority Leader Mitch McConnell earlier in the day, "where I was able to express this need and talk over some of the numbers."

"I appreciate him hearing me out, and now I hope that he will be able to act in this next CARES Act to make sure that the type of relief that is needed is provided," Beshear said.

McConnell, R-Ky., has made public statements dismissing the need for what he characterized as a "blue state bailout," instead suggesting that financially struggling state governments declare bankruptcy.

Beshear said McConnell understood his request and why he believes it is so important, but added that he doesn't believe the Republican Senate leader is close to supporting such a bill, as "I think he wants to see other things in an ultimate bill."

While state revenue grew 3.9% through the first three quarters of the current fiscal year, the report projected fourth-quarter receipts to fall 18.2% to 23.7% below the previous year's total.

More news:Kentucky's testing capacity improves, but still lags behind 

In the report, Hicks said this would be the first time General Fund revenue has declined in a quarter since the 2010 fiscal year during the Great Recession.

The revenue stream for the state Road Fund is also projected to take a significant hit, falling 7.5% to 12.5% below the budgeted estimate of $1.55 billion through the end of the current fiscal year, amounting to a $116.4 million to $194.6 million shortfall.

The Kentucky General Assembly passed a one-year state budget instead of a two-year state budget in its recently completed legislative session, citing the great uncertainty about tax revenue in the face of the COVID-19 crisis.

The budget passed for the 2021 fiscal year used the most pessimistic revenue scenario from the last state forecast conducted in December, lowering the appropriated amount by $130 million — though legislators estimated the shortfall could easily end up exceeding $1 billion.

State Sen. Chris McDaniel, the Republican chairman of the Senate Appropriations and Revenue Committee, told The Courier Journal legislators knew receipts "were going to be grim and it is clear that that is the case."

"That’s why we made the adjustments to the most pessimistic model possible and still left over $300 million in the rainy day fund," McDaniel stated. "Hopefully the governor will continue to work to get all Kentuckians back to work as soon as safely possible so that we can mitigate as much impact as possible."

Related:Legislators see bleak outlook for state budget as virus impacts revenue

Republican House Speaker David Osborne issued a statement praising the legislature for pushing policies that had spurred Kentucky's economic growth until the pandemic hit in March, but added: "We know that our short term approach will have to change to include policies that support our businesses as they come back."

"In the meantime, our decision to pass a one year budget rather than the traditional two year spending plan provides us with some flexibility when we work on the second year of the budget next session," Osborne stated.

Louisville Mayor Greg Fischer said last week the city is projecting a $46 million shortfall for the current fiscal year and another $69 million shortfall in the following fiscal year because of COVID-19, also calling on Congress to pass an aid package for local governments.

Beshear said he would provide more details on Friday on what the projected revenue shortfall would mean for state government without federal aid, noting that all 50 governors are lobbying for such assistance.

See also:Yarmuth says federal aid for states and cities is 'virtually certain to happen'

Reach reporter Joe Sonka at jsonka@courierjournal.com or 502-582-4472 and follow him on Twitter at @joesonka. Support strong local journalism by subscribing today: courierjournal.com/subscribe.