Federal stimulus led to better than expected revenues and will likely mean no deep cuts in current state budget year, Beshear administration says

The COVID-19 pandemic hit in the middle of Kentucky’s 2020 legislative session while lawmakers were working to craft the state’s next two-year state budget. Because there was such uncertainty about how long the pandemic would last and its economic impact, lawmakers chose to draft only one year of the budget. When they return in January of 2021, they will get to work on the second year of the budget—something they typically do not work on in a short session.

Gov. Andy Beshear and his administration are currently working with unofficial revenue estimates and awaiting new information from the Consensus Forecasting Group to get a clear picture of what the state will face in the coming budget year.

State Budget Director John Hicks told lawmakers Tuesday the Beshear administration presently expects there will not be a need to make budget cuts in the fiscal year 2021 budget, which began on July 1, 2020. Hicks stated the state has seen better than expected revenues and more flexibility with the Coronavirus Relief Fund.

What the next year of the budget, fiscal year 2022, will look like is less clear. Hicks noted the revenues were better than expected in many areas in recent months because they were propped up by federal help with unemployment insurance payments, paycheck protection plan payments to businesses, stimulus checks to individuals, and more one-time aide which will eventually go away.

The costs of testing and contact tracing are areas the state will have to take a serious look at as federal funding runs out on December 31, 2020 and then that cost will fall to the state. Similarly, the cost of distributing a COVID-19 vaccine will also be an important factor as the storage and other logistical items will be a state responsibility and no state funding has been provided at this time.

Hicks discussed some of the biggest changes in the largest areas of state budget, including a change in policy for K-12 education funding and how that funding is monitored, a higher number of people on Medicaid meaning a larger cost which is being balanced out by an increase in federal help in that area, and fewer inmates in our corrections system which is a small cost savings.

In total Kentucky received $1.6 billion in federal CARES Act funding and has been spending that in certain areas like local government assistance and more. Hicks pointed to the governor’s recent commitment to dedicate at least $200 million toward the Unemployment Insurance Trust Fund to pay back a federal loan to cover the surge in claims, an item the Kentucky Chamber has been a vocal advocate of. The state must spend all its CARES Act funding by the end of the year or pay it back to the federal government but members of the Beshear administration assured lawmakers the money will be spent.

As for what comes next, Hicks said the Beshear administration is currently crafting their budget proposals and will wait to see more forecasts from the state and federal level to get an accurate picture of where state revenues stand in fiscal year 2022.

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