FRANKFORT, Ky. — A panel of state economists says Kentucky taxpayers are headed toward a $155 million deficit when the fiscal year ends in June, a move that gives Republican Gov. Matt Bevin authority to order spending cuts across most of state government.
The panel predicted a deficit of more than $200 million two months ago, but that was just a preliminary estimate that did not officially change the state’s revenue forecast. Still, it alarmed Bevin, who asked most state agencies to prepare spending reduction plans of 17.4 percent.
The governor cannot order spending cuts unless the economists officially change the estimate. They were not scheduled to do that until December, when they would have data from roughly half of the fiscal year to help make the decision. But the Bevin administration asked the panel to make the decision earlier, arguing it is easier to cut spending earlier in the fiscal year when state agencies have not yet spent most of their budgets.
The panel struggled to come up with an official forecast. In the two months since they last met, Kentucky collected more tax revenue that it had predicted. That’s because Kentuckians were earning more money, allowing them to buy more stuff and pay more sales taxes and income taxes.
The group decided they were still pessimistic about Kentucky’s economy, but not as much as they were in August, settling on a deficit of $155 million instead of $206 million. The forecast will change again in December.
Chris Bollinger, a member of the panel and an economics professor at the University of Kentucky, noted that the $50 million difference may seem like a lot, but it represents less than 1 percent of Kentucky’s total general fund spending.
“In the next year, how much will your household have as total income from all sources? That’s’ what we’re being asked to do,” he said. “Do you think you could be within 1 percent of what you are going to earn in the next year? I mean, I don’t think anybody can. It’s a very hard thing to do.”
It’s unclear how the updated forecast will affect Bevin’s plan to slash state spending. Budget Director John Chilton said it probably means state agencies won’t have to cut as much. But he said Bevin could decide to keep the 17.4 percent cuts just in case.
“That will be his decision,” Chilton said. “He’s a pretty conservative guy.”
Democratic Attorney General Andy Beshear has already threatened a lawsuit to block Bevin’s spending cuts. He points to state law that says the governor cannot order cuts that are more than the projected shortfall. Chilton disagrees, saying nothing stops the governor from reducing spending.
In 2016, Bevin tried to order spending cuts at the state’s public colleges and universities. But Beshear sued him, and the state Supreme Court ruled Bevin had to have permission from the state legislature to cut college and university spending and ordered Bevin to give the money back.