Legislative update: Budget review process prepping for an uncertain fiscal year

By CHAD MCCOY
50th District House Representative

Thursday, Jan. 21, 2021 — The January portion of this year’s legislative session was extremely productive. We adjourned on Wednesday, January 13, after sending seven bills to the Governor and beginning work on the budget and other important legislation. Without a doubt, the budget is the biggest challenge we will face when we get back. When we use the term “budget,” we are most often talking about the executive branch budget that covers funding for state programs, agencies, and offices.

However, state spending breaks down into the executive (HB 192), legislative (HB 194), and judicial (HB 195) branches of state government, as well as the budget that will guide our road and infrastructure spending (HB 193). The House and Senate acted on all of these bills this week, moving them through the process to allow us to continue working on them during the next few weeks. As a member of House Majority Leadership, I will serve on the committee that works out budget details over the next few weeks.

Last year was the first time in modern history that the legislature did not approve a two-year budget. No one had any idea of how the pandemic or the state’s response to it would impact the state’s needs or state revenue. Therefore, it was far more responsible to set aside the budget we had prepared and keep spending flat in a one-year continuation budget. While many things have changed a great deal since last March and April, the uncertainty remains, and the pandemic is far from over. While state revenue remained steady through the end of 2020, that can be attributed to a combination of federal aid and the resilience of our business sector. Both are subject to change as the world continues to deal with the virus and so many Kentuckians remain unemployed. There are several factors we have to consider, including the economy, our revenue picture, and how prepared we are to deal with another recession.

STATE ECONOMY. The Consensus Forecasting Group (CFG), a panel of economists who estimate revenue growth and economic health, met in December. The forecast issued by the CFG showed a small increase in tax receipts in this fiscal year. However, at least one member of the panel cautioned that the forecast is merely an educated guess, describing it as throwing darts at a dartboard. People have asked me why I talk so much about the economy, and my answer is simple – jobs and the people who need them to provide for themselves and their families. When the economy is strong, people have an opportunity to improve their lives. If we see another economic recession, opportunities dry up, state revenue goes down, and government spending increases because more people qualify for programs like Medicaid.

STATE REVENUE. Please keep in mind, when we talk about revenue, we are talking about taxpayer money – the money you and I pay on our income, purchases, property, and other items and services. When taxes are paid, someone had to work to earn the money to pay them. Any time the government tells us they are “giving” people something, we need to be cautious because they are not giving us anything, but rather returning money we earned in the first place.

PREPARE FOR UNKNOWN. Kentucky’s rainy day fund is basically the state’s emergency fund and savings account. It sits at a record high with $460 million. Adding to the fund has been a priority for the House since conservatives took control in 2017. At that point, Kentucky had one of the most depleted funds in the country. We have made some gains, even requiring that the surplus revenue from last fiscal year be deposited into the fund. Kentucky’s rainy day fund may be at its highest ever, but it still only has enough money to cover a handful of days of state budget needs. To put it into perspective, the state has already borrowed more than $505 million to pay unemployment insurance benefits, much of which went to individuals who did not traditionally contribute to the plan. The rainy day fund is always critical to our state, but particularly so when our economy is struggling.

The budget we craft must take all of this into consideration and provide a blueprint for restoring our state and strategically reinvesting in areas that we are certain will benefit Kentuckians. We must look at it as an opportunity to lay the groundwork for our state’s comeback.

We will reconvene on February 2 for the remaining 22 days of this session. In the meantime, I can be reached during the week from 8:30 a.m. until 4:30 p.m. (EST) through the toll-free message line at 1-800-372-7181. You can also contact me via e-mail at Chad.McCoy@lrc.ky.gov.

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