This week, Kentucky’s budget office released its third quarter economic report, which predicted the state will end fiscal year (FY) 2011 with a $64.5 million surplus thanks to higher-than-expected revenue growth, mostly from corporate and coal severance taxes. Budget Director Mary Lassiter cautioned that rising fuel prices could curtail consumer spending and recent bad weather would create additional, unbudgeted expenses. For the first time in several years, however, the state will likely not have to find additional cuts at the end of the fiscal year.
While this year’s revenue growth is a sign the state’s economy is recovering, Kentucky’s budget is not out of the woods yet. Because the FY10-12 budget includes a significant amount of federal stimulus funds and use of one-time money (including fund transfers and debt restructuring), FY12 will end with an estimated $538 million budget hole, or structural deficit. These two factors, along with our state’s growing unfunded pension liability, mean state government still has plenty of work ahead to solve our budget problems.