Economic upturn gives boost to state coffers
A revenue surplus the state expects will overfill its coffers
this fiscal year has taken Gov. Ernie Fletcher around Kentucky
asking taxpayers how the money should be spent or saved.
This would be the fourth straight time the state ends the
year with more revenue than expected, and the first time
in Fletcher's term that a surplus is projected when the
legislature has the chance to recommend how it should be
used.
"We're here tonight because it is your money and your
priorities," Fletcher said Thursday night during a
town hall meeting on the surplus at Owensboro's City Hall.
State Budget Director Brad Cowgill said during an interview
last week that the Fletcher administration takes pride in
having surpluses at the end of each of the first three years
of the governor's term.
This July, the bulk of a general fund surplus of $136.5
million was directed into the state's "rainy day fund,"
which now sits at about $230 million.
From the surplus, $24 million was sent to the state's retirement
system funds.
The projected surplus for this fiscal year is unusual,
Cowgill said, not only because of its size, but also because
it can be seen earlier in the year.
In the past three years, the revenue surplus was only found
toward the end of the fiscal year after the legislature
had already adjourned, which left limited options for how
that money could be used, Cowgill said.
"For the most part, when we've had revenue surpluses,
... they've been a product of conditions that arose pretty
much right at the end of the year," Cowgill said.
Fletcher and his administration credit a strengthening
economy for increased collections by the Department of Revenue
during the first quarter, which led to the projected surplus
of $279 million by the end of the fiscal year in June.
"A little economic breeze blows across the state,
and it has a fairly significant effect on collections at
the Department of Revenue," Cowgill said.
During the first quarter, the state brought in $70 million
more than it had the previous year, boosted in part by higher
receipts from corporate income and sales taxes, according
to the state budget director's office.
Since the release of the first quarter report and annual
projection in November, the state has continued to have
strong general fund receipts.
Cowgill's office announced this week that in December,
the state brought in more than $900 million into its general
fund, the first time that milestone had been surpassed and
a 5 percent increase over December 2005.
Fletcher said during an interview following Thursday's
town hall meeting that December's receipts may bode well
for the size of the surplus at the end of the year.
Fletcher emphasized that the projected $279 million surplus
is just an estimate, and the final number could be higher
or lower.
"I think there's a possibility of the number being
larger," Fletcher said.
Several legislators have questioned the estimate, which
is based on returns during the first quarter of the fiscal
year and projections for the remainder of the year by Cowgill's
office.
This week, the governor summoned the Consensus Forecasting
Group to meet to provide "up-to-date and accurate consensus
revenue estimates to guide the administration as well as
the legislature in its course of action," Cowgill wrote
in a letter to the group's director.
The group, a nonpartisan, independent group that provides
revenue estimates for the state during its budget process,
is scheduled to meet in Frankfort next week.
"There's always a possibility they could come in and
make it smaller," Fletcher said.
During the first days of the legislative session last week,
Rep. Harry Moberly, chairman of the House Appropriations
and Revenue Committee, expressed concerns about committing
the surplus to new programs or projects.
"We have more obligations than that surplus will cover,"
Moberly said.
Moberly cited mounting concerns about funding for state
retirement systems, a commitment the state made this year
to bring teacher salaries in line with those in surrounding
states and the structural imbalance in the budget.
"This is a technical surplus, but as a practical matter,
we'll be lucky if it's enough to meet our current commitments,"
Moberly said.
Regardless of the surplus, the state is going to need to
exercise restraint and also continue to stimulate the economy
during the coming years to meet those obligations, Cowgill
said.
"The governor has indicated that he wants to ensure
that the money resulting in this year's surplus is spent
as conservatively and as frugally as all the other money
that has been entrusted to the executive branch," Cowgill
said.
2%
economic growth seen in '07