Budget could have $50 million shortfall, Chilton says

Budget Director John Chilton says the proposed budget will have a shortfall of $50 million. (Kentucky Today/Tom Latek)

By TOM LATEK, Kentucky Today

FRANKFORT, Ky. (KT) – There are more indications that Gov. Matt Bevin may veto parts of the bills that deal with revenue and the state spending plan for the next two fiscal years that begin July 1, fearing it will not be a balanced budget.

State Budget Director John Chilton sent the governor a letter on Friday, a copy of which was obtained by Kentucky Today, which states revenue would be much less than anticipated in the revenue legislation, House Bill 366, which included some changes to Kentucky’s tax code.

He said the Office of the State Budget Director began analyzing the bill on April 2, the same day it cleared the General Assembly.

In the letter, Chilton said, “As you know, there is no exact science for projecting changes in revenue resulting from changes to the commonwealth’s tax code. It is an inherently complex and difficult process, especially when some taxes are being increased, and other taxes are being decreased. In prior years, the LRC budget staff worked directly with our office and the Department of Revenue to reach a consensus on revenue projections in advance of the General Assembly considering tax legislation. HB 366 did not follow this process.”

Chilton said Greg Harkenrider, the deputy director for Financial Analysis, met with staff at the Legislative Research Commission several times this past week to help better understand the fiscal changes contained in HB 366.

“The LRC’s initial fiscal analysis of HB 366 indicates a net increase in revenue of $234 million and $244 million in the first and second years of the biennium,” Chilton stated in the letter. “Our analysis indicates that annual revenue increases are likely to be at least $25 million less in each year, a shortfall of at least $50 million over the biennium. We based our projections using the Department of Revenue’s data from actual returns filed by Kentucky taxpayers.”

Chilton told the governor that they continue to work with the LRC to iron out differences between the budget office and LRC calculations, but they may become aware of other concerns.

“It is important that OSBD and the LRC be comfortable with the revenue projections when the Consensus Forecasting Group meets to consider the effect of the tax changes on future revenues. In any case, we now believe that the biennial budget will be out of balance as the revenue generated by HB 366 will be significantly lower than anticipated. This, of course, is a great concern.”

On April 2, Bevin issued a statement which was the first hint that he may use his line-item veto power.  “Kentucky is poised for greatness, but future successes are very much dependent on a competitive tax structure and a budget that is fiscally responsible,” he said.  “A fiscally responsible budget does not include unfunded mandates and does not intentionally create budget shortfalls in the future.  A fiscally responsible budget does not put the obligation for today’s spending on the backs of our children and grandchildren.

“I am very concerned that the current proposals from the General Assembly may not meet these basic standards of fiscal responsibility.”

Bevin said there is still time in the legislative session to ensure that any budget and tax changes put Kentucky on a stronger financial foundation.

Lawmakers will be in recess until April 13 when they return to consider overriding any gubernatorial vetoes.

Thus far, there has been no response to a request for comment on the letter from House and Senate leadership.