Economists suggest governor and lawmakers go with an economic forecast expecting more revenue as they craft budget in 2021

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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.

On Friday, the Consensus Forecasting Group met to discuss national and state economic trends and give recommendations to lawmakers as they craft the next year of the budget.

Items like lack of additional federal stimulus, mandated business closures, unemployment rates, and more were all discussed as ways the economy could change in the coming months.

After a lot of discussion about how COVID-19 will continue to impact the economy, the group chose to recommend the state budget be crafted based on what is called the “control forecast.”

Under the control forecast, the national GDP is expected to experience slow growth in both FY 2021 and FY 2022. The forecast assumes there will be no new federal stimulus and increased COVID infection rates leading to more state restrictions and economic shut downs which slows consumer spending and an increase in unemployment. It also assumes there will not be a vaccine widely available until much later in 2021 than the other forecasts.

Choosing the control forecast means the group believes there will be an additional $125 million in the $11.6 billion budget in current fiscal year 2021 and an additional $22 million in fiscal year 2022 budget of $11.9 billion.

Many members of the Consensus Forecasting Group noted that all three forecasts—the optimistic, control, and pessimistic outlooks—all had very small changes from what they had enacted as their estimates in December 2019.

Presenters noted many of the wage figures were not as low as many would have expected as a result of the pandemic because Kentucky has seen $5.25 billion flow through the unemployment system since March 2020 and that the state still has between 95,000-100,000 individuals receiving some form of unemployment benefits.

Many also noted they expect to see a stimulus package from Congress before the end of the year and/or in January, which could prop up the numbers in the state budget.

As for the Road Fund, the group also decided to move forward with the “control” scenario which would mean they are estimating there will be additional revenues of $24.3 million in FY 21 and $16.1 million in FY 22 over the estimates they enacted in December 2019.

These figures will be used by Gov. Andy Beshear and the General Assembly as they craft the budget beginning in January.

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Jacqueline Pitts
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