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Is There a Budget Surplus in Frankfort and Can We Get Our Hands on It

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Is There a Budget Surplus in Frankfort and Can We Get Our Hands on It

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    1. Is There a Budget Surplus in Frankfort and Can We Get Our Hands on It? Debra Miller Director of Public Policy Kentucky Youth Advocates October 24, 2006

    2. Understanding the Kentucky Budget A quick primer: some facts on revenue and expenditures Some budget lessons: perspective and percentages Revenue since 2006 sine die Predictions for 2007 and beyond

    3. Primer Question #1: Where Does the Money Come From? Get the break out of the General Fund revenue sourcesGet the break out of the General Fund revenue sources

    4. Primer Question #2: Where Does the Money Get Spent?

    5. Primer Question #3: Does General Fund Revenue Grow Across Time? Did the mid to late 90’s feel better? They were. Revenues grew an average of 5.7% annually 1995 to 2000. Revenues only grew on average annually 4.2 % 2000 to 2006. Each one percent growth is something in the neighborhood of $75 million dollars of new revenue. Some of the “new” revenue goes to cover the growing costs of services (the inflationary costs). Did the mid to late 90’s feel better? They were. Revenues grew an average of 5.7% annually 1995 to 2000. Revenues only grew on average annually 4.2 % 2000 to 2006. Each one percent growth is something in the neighborhood of $75 million dollars of new revenue. Some of the “new” revenue goes to cover the growing costs of services (the inflationary costs).

    6. Primer Question #4: What is the Consensus Revenue Forecast? State law requires legislature and executive branch consensus on revenue before Governor delivers his budget recommendation During session, legislature can adjust only as new laws increase/decrease revenue Estimates “off” by 0.5% means $40 million “Conservative” estimates often provide surpluses while “aggressive” estimates necessitate budget cuts

    7. Lesson #1: A little money means a lot if you are a small operation The Education Cabinet looks like a big loser because teacher retirement system and school facilities commission moved from there to General Government. In turn, General Government looks like a big winner. Similar goings on with Personnel Cabinet – employee health insurance costs moved to each cabinet, but annual “increment” (pay raise) costs are budgeted within Personnel, not separate Cabinets. Big winner: Cabinet for Economic Development – over 30% increases, then transportation, then, environment & public protection Department of education (K-12) growth as percentage looks small, post secondary education tooThe Education Cabinet looks like a big loser because teacher retirement system and school facilities commission moved from there to General Government. In turn, General Government looks like a big winner. Similar goings on with Personnel Cabinet – employee health insurance costs moved to each cabinet, but annual “increment” (pay raise) costs are budgeted within Personnel, not separate Cabinets. Big winner: Cabinet for Economic Development – over 30% increases, then transportation, then, environment & public protection Department of education (K-12) growth as percentage looks small, post secondary education too

    8. Lesson #2: It takes a lot of money to mean much if you are a big operation Big winner of new funds – clearly the Department of Education (K-12) While the infusion of large cash amount doesn’t translate to very large percentage increase, it does mean that much of “new” revenues are allocated to K-12 education, leaving only smaller amounts for other state services. Here you see the impact of the dollar amount provided to the Department of Education. Note that the Cabinet for Health and Family Services reflects the entire Cabinet budget. Actually Medicaid received increased funding of about $600 million, but some of this increase was offset by budgeted decreases in other areas.Big winner of new funds – clearly the Department of Education (K-12) While the infusion of large cash amount doesn’t translate to very large percentage increase, it does mean that much of “new” revenues are allocated to K-12 education, leaving only smaller amounts for other state services. Here you see the impact of the dollar amount provided to the Department of Education. Note that the Cabinet for Health and Family Services reflects the entire Cabinet budget. Actually Medicaid received increased funding of about $600 million, but some of this increase was offset by budgeted decreases in other areas.

    9. Lesson # 3: There is no free lunch; interest on debt must be paid You all probably remember that Governor Fletcher vetoed $370 million of bonds for projects. The annual debt service (think interest) due for those bonds was $11.6 million. In other words, every year for the next 20 years the Kentucky budget would have included an additional $11.6 million to pay off the debt for the vetoed projects. Nonetheless, the total debt service payment for 2008 is budgeted at $840 million of state general funds, or 3.7% of the budget for all funds. This is up from 2.7% in 2005.You all probably remember that Governor Fletcher vetoed $370 million of bonds for projects. The annual debt service (think interest) due for those bonds was $11.6 million. In other words, every year for the next 20 years the Kentucky budget would have included an additional $11.6 million to pay off the debt for the vetoed projects. Nonetheless, the total debt service payment for 2008 is budgeted at $840 million of state general funds, or 3.7% of the budget for all funds. This is up from 2.7% in 2005.

    10. Revenue Estimates v. Actual Receipts

    11. What happened to the $136.5 Million surplus at end of FY 2006? $112.5 Million to Budget Reserve Trust Fund (“rainy day trust fund”) $12 Million to Kentucky Employees Retirement System (KERS) $12 Million to Kentucky Teachers’ Retirement System (KTRS) Medical Insurance Fund

    12. What are the chances of a “surplus” in 2007? GOOD NEWS Growth in first quarter of 2007 seems to be above target Strength of national/state economy through FY 2007 UNCERTAINTIES Will cigarette manufacturers’ voluntarily assign escrow ($35 M in ’07; $20M in ’08)? Will mandated executive branch “efficiencies” ($78 M) be met? Budget assumes $20M in “economic development growth impact funds” Budget assumes additional $7M in lottery receipts over consensus forecast

    13. What are the chances of getting our hands on the surplus, if any, in 2007? FY 2008 budget built on beginning balance (carry over from ’07) of $435M; but spend down in FY 2008 leaves just $10M beginning balance in ’09 “Rainy day fund” is now 2.8% of budget; statutory target is 5% State retirement funds are inadequately funded for the long-run Availability of fund transfers may be drying up Accuracy of tax impact estimates – AMC small business relief and 2005 tax changes

    14. The Frankfort Rumor Mill. . . 2007 General Assembly will be pressured to fund projects vetoed by Governor. If Gov. Fletcher runs for re-election, he would like to have checks to give out in communities. Legislators are not up for election and would prefer that project spending come in 2008. Growing pressure on legislators to be good stewards of state budget process. SO. . .will we get our hands on surplus? . . . Brooklawn and polar bears, maybe, Medicaid, probably not.

    15. www.kyyouth.org To download a copy of the full Power Point presentation, visit the KYA website, www.kyyouth.org. Follow links on KYA homepage or click on “Fiscal Analysis” menu item.

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