Some states rolling in dough

By Todd Duvall Published:

There were understandable sighs of relief around the Capitol last week when new tax revenue estimates for the coming two-year state budget came out higher than estimates made in October.

The Consensus Forecasting Group, a panel of state economists that meets regularly throughout the year, believes there will be about $450 million in new tax revenues for the 2006-2008 budget cycle. Add that to an expected surplus in tax revenues for the current fiscal year, and theres a chance that at least some of the major spending issues expected in the General Assembly beginning next month can be addressed.

Not all, by any means, but perhaps some of the most urgent.

When dealing with annual General Fund expenditures of about $8 billion a year, a couple of hundred million a year doesnt go a long way, especially coming so soon after the major budget cuts that began with the 2000 national economic downturn.

And the Forecasting Groups estimates can change fairly quickly as the states economy changes. For instance, the better than expected growth in tax revenues over the next two years is based, in part, on higher state income tax receipts.

But the states unemployment rate rose in November to 6.2 percent, a substantial rise from the 4.7 percent rate in November, 2004. Any further increases in unemployment could force a downward revision of income tax expectations for next year.

So where will the new tax revenues go in the new budget? There almost certainly will be little money available for any grandiose projects beyond the debt service on $75 million for the proposed Louisville arena and the $30 million Horse Park arena in Lexington, much of which was socked away earlier.

Indeed teachers and state employees could get the lions share of the new revenue either with pay raises, health insurance coverage or payment into their underfunded pension plans or some combination of the three.

Every state university will be at the Capitol lobbying Gov. Ernie Fletcher and legislators for a larger share of state funding, including the ambitious efforts of University of Kentucky President Lee Todd to propel UK into the top ranks nationally of research universities.

And there is always the crisis in coming up with enough money to keep the state Medicaid program from lapsing into deficit spending.

While there will be more tax revenues over the next two years, Kentucky is hardly swimming in new money to spend.

Unlike most other states that raised taxes during the recessionary years, Kentucky raised some taxes and lowered others to fulfill Fletchers revenue neutral campaign promise.

According to The Washington Post last week, those states that raised taxes are now ready to go on a spending spree with serious new money available.

In Wyoming, for example, oil, gas and coal taxes have produced a budget surplus amounting to two-thirds the amount of the states budget. In Kentucky, that would translate into more than $5 billion, enough to fund every education dream ever conceived from kindergarten through graduate school.

In Delaware, a budget surplus is being used to fund a full day of kindergarten for every 5 year old. Illinois is funding a health care program for kids out of its surplus. New Jersey and Pennsylvania are paying for property tax decreases, and Hawaii is giving a $300 million tax refund out of surplus revenues. Colorado is financing a light rail line from downtown Denver to its airport. New Mexico is using a big part of its $1 billion surplus to build a spaceport for a private firm planning to offer people trips into space.

Revenues improved notably in fiscal 2005, enabling many states to begin restoring funding to programs cut during the previous economic downturn, The Post quotes a report by the National Governors Association and the National Association of State Budget Officers.

Kentuckys still antiquated tax system isnt churning out huge budget surpluses for spaceports and light rail lines, let alone tax refunds.

For now at least, Fletcher and legislators will have to be content with a few hundred million dollars a year and the hope the forecasters are on the money.

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