Gov. Andy Beshear’s administration says federal assistance led to higher-than expected tax revenues during the coronavirus pandemic and that the state hopefully won’t need to make budget cuts this year.
Still, officials predict that Kentucky will have a $99 million shortfall for the current fiscal year, which ends in June 2021. And the year after that will depend on the state and nation’s ability to recover from the coronavirus pandemic.
Revenue from sales and income taxes has been higher than expected, but has dropped off since the expiration of federal stimulus programs, said John Hicks, Kentucky’s state budget director.
“We expect to see a weakening in state revenues as a result of the termination of those programs,” Hicks said. “And I will say, we’re seeing that …in our peer states. We’re seeing lower growth rates in September and October than we saw in the summer.”
Though state revenue collections have grown by 5% since June, the rate of growth has declined each month, Hick said.
The time period coincides with the expiration of federal fiscal stimulus to states, the Paycheck Protection Program and $400 weekly supplement to unemployment benefits.
Congress has been unable to pass a new coronavirus relief bill, with the Democratic-led House calling for a $3 trillion relief package and the Republican Senate calling for a $500 billion package.
Hicks said that the federal government recently gave states more flexibility with how they may spend CARES Act funds, which were not allowed to directly replace lost tax revenue.
Now, Kentucky can use part of the $1.6 billion it received through the CARES Act to pay for state employee salaries for corrections officers and health department workers.
“That’s very good news. As you all know, we had looked at budget cuts earlier with the executive branch, up to maybe 8% in some cases,” Hicks said.
Hicks said it’s unclear what the next fiscal year, which begins next July, will look like.
Federal CARES Act funding expires at the end of this year and unless a new relief package is passed, the state will be on the hook to pay for coronavirus testing, contact tracing and eventually vaccine distribution.
The Kentucky General Assembly will return for its annual legislative session on January 5. Lawmakers will be tasked with passing a new state budget after only passing a one-year plan this year.