FRANKFORT, Ky. (AP) - Economic wreckage from the coronavirus outbreak threatens Kentucky’s state government with a crippling revenue shortfall that could approach half a billion dollars in the current fiscal year, according to a budget report issued Thursday.
The grim revenue projections could force Gov. Andy Beshear into making painful budget cuts at a time when Kentucky’s economy is trying to recover from the health crisis. The virus outbreak has shuttered many businesses and put hundreds of thousands of Kentuckians out of work.
The financial woes in his home state also could intensify pressure on Senate Majority Leader Mitch McConnell as Congress considers whether to take up another round of coronavirus relief.
McConnell said Wednesday he is “open” to considering additional funds for state and local governments, reflecting his shifting tone. Last week, the Republican leader suggested states should be allowed to go bankrupt, comments that drew a barrage of criticism from the nation’s governors. McConnell has insisted the next package must also include federal liability protections from what he warned will be an “avalanche” of lawsuits against businesses that reopen during the pandemic.
McConnell is running for reelection this year in Kentucky.
Beshear said the projected revenue shortfalls pose a “real threat” at a time when public assistance has never been more important in dealing with economic fallout from the pandemic.
The Democratic governor said he made a pitch for additional federal assistance for state and local governments in a Thursday conversation with McConnell.
“I appreciate him hearing me out,” Beshear said during his daily coronavirus briefing. “Now I hope that he will be able to act … to make sure that the type of relief that is needed is provided.”
Beshear, who has gained a powerful bully pulpit with his daily televised briefings, urged Kentuckians to reach out to the state’s congressional delegation to advocate for the aid.
The nosedive in Kentucky’s revenue collections is forecast to continue into the first half of the next fiscal year that begins in July, said the report from state budget director John Hicks.
Hicks said in the report that an unofficial revenue estimate of Kentucky’s tax receipts for the current fiscal year shows a potential General Fund shortfall of $318.7 to $495.7 million.
That would mark the first decline in Kentucky’s approximately $11 billion General Fund in a decade.
General Fund growth was a solid 3.9% through the first three quarters of the current fiscal year, the report said. The revenue outlook “changed dramatically” as the COVID-19 pandemic hit, Hicks wrote, and revenue collections are expected to drop sharply in the fourth quarter of this fiscal year.
“The declining economic activity which began in March will appear in April receipts,” the report said. “Receipts are expected to soften in … April before getting dramatically worse in May and June.”
Fourth-quarter receipts for the General Fund are estimated to range from 18.2% to 23.7% below collections for the year-ago period, the report said.
The revenue decline also is forecast to continue into the first half of the next fiscal year.
General Fund revenues in the first six months of the upcoming fiscal year are expected to decline another 10.5% to 17.2%, the report said. Steep drops in sales and business taxes are forecast.
Meanwhile, the state’s Road Fund revenue shortfall is projected to range from $116.4 million to $194.6 million, the report said. Fourth-quarter Road Fund receipts are estimated to range from 36.8% to 55.2% below the prior-year collections, it said.
Beshear said the projected shortfalls pose a threat as the state combats the virus and the economic damage it inflicted. The shortfalls are also a threat to “helping us rebuild,” he said, warning that without more federal aid, “our recession will be longer, our unemployment will be greater.”
The next step will be for a consensus forecasting group - made up of economists - to make an official state revenue estimate in coming weeks, the governor said.
“And then I’ll advise you on the actions we’ve got to take after that,” Beshear said.
Kentucky’s economic outlook is bleak, the report said.
A more pessimistic forecast says Kentucky’s wage and salary income is expected to plunge 24.3% in the current fourth quarter, followed by a 37.4% drop in the first half of the next fiscal year. Another forecast puts the declines at 5.8% in the current quarter and 11.7% in the following six months.
The declines will cause a drag on tax collections. Anticipating the dropoff, the GOP-led legislature scaled back on spending in the recently concluded legislative session. Beshear’s campaign pledge to give teachers a pay raise was among many spending initiatives that fell by the wayside.
The grim projections come as Beshear has laid out plans for phased reopenings of businesses, factories and churches across Kentucky in May.
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