Despite Revenue Shortfall -- Patton Administration’s Cost Saving Measures and Federal Fiscal Relief Allow State to End the Year with Surplus Funds

July 22, 2003 – Frankfort, KY -- The Office of State Budget Director announced today that, despite a $75.7 million General Fund revenue shortfall, the Commonwealth closed the books on the fiscal year ending June 30, 2003 with a slightly larger ending balance than was budgeted.

The state ended the fiscal year with $162.5 million while the enacted budget called for an ending balance of $138.7 million, which is budgeted to be spent in Fiscal Year 2004. As a result, the Commonwealth will be able to deposit $23.8 million to the Budget Reserve Trust Fund, the “rainy day account,” as a buffer against future potential revenue shortfalls and unexpected necessary expenses such as those related to natural disasters.

FY 2003 General Fund Budget Summary ($millions)

The Problem:

Revenue Shortfall

$75.7

Unbudgeted Expenses

$14.2

Total Problem

$89.9

The Solution:

Reduced Expenditures

$38.6

Additional Resources

$6.4

Unanticipated Federal Fiscal Relief

$68.7

Total Solutions

$113.7

The Result:

Deposit to Budget Reserve Trust Fund

$23.8

Mary Lassiter, Acting State Budget Director, stated: “Our ability to begin FY 04 as budgeted, and to deposit money into the Budget Reserve Trust Fund, is directly related to both state government’s efforts to reduce spending and to the federal government’s recognition that states are facing the worst economic times since World War II.”

“Our administration started focusing on reducing operational costs of state government as early as FY 01 when it became clear that the national economic downturn would impact Kentucky as it has all states. Despite budget cuts in Fiscal Years 2001, 2002, and 2003, state workers have tightened their belts beyond expectations. As I said in December of 2002 when we issued specific directives to implement cost-saving measures, these are significant measures with significant savings, however, these reductions will not solve the revenue shortfalls facing our state,” said Governor Patton.

State government began a series of cost-saving measures which were included in the budget enacted by the General Assembly, including reducing the number of state workers, and reducing costs associated with overtime, travel, energy, state contracts, printing, furniture and equipment, vehicles and other discretionary spending. Most state agencies’ budgets were cut by 2.6% in FY 03 in recognition of these actions. In addition to these cuts, state agencies further reduced expenses by approximately $38.6 million below the levels authorized for FY 03, the year which ended this past June 30. Funds were lapsed to the General Fund from approximately 100 appropriation units.

The federal Jobs and Growth Tax Relief Reconciliation Act of 2003 included temporary fiscal relief for states for both Medicaid programs and for states’ budget problems. Kentucky will receive $138.8 million for the Medicaid program over the current biennium, which reduces the estimated $169 million Medicaid budget shortfall to $30 million. Kentucky received $68.7 million in FY 03 from the federal government flexible grant, and will receive another $68.7 million in FY 04. Ms. Lassiter noted: “If not for the federal fiscal relief, we would be starting FY 04 with $45 million less of a beginning balance than is required to finance the FY 04 enacted budget, assuming all other estimates used in preparing that budget are still valid. The federal fiscal relief is a non-recurring source of funds. We continue to have structural budget issues which need to be addressed.”

FY 03 marked the third consecutive year of revenue shortfalls. The enacted budget for FY 04 depends on revenue growth of 3.5%. However, with FY 03 actual receipts coming in $75.7 million below budgeted, revenues must grow by 4.6% in FY 04 to meet budgeted expenditures. The Consensus Forecasting Group, which estimates state revenues, will project available revenues for fiscal years 2004 – 2008 in mid-August.

The deposit to the Budget Reserve Trust Fund, along with appropriations made to the Fund by the General Assembly, will bring the Fund’s balance to $54.7 million. At its peak at the beginning of FY 02, the Fund’s balance was $278 million, which was subsequently used to balance the state’s budget.

Governor Patton, Chairman of the National Governors Association, said “At a time when thirty-seven states have had to cut budgets and twenty-nine states are recommending tax and fee increases, we are fortunate to be able to begin FY 04 as budgeted and make a small deposit to our rainy day fund. While there are signs that the national economy may be turning around, we have not seen the evidence yet in Kentucky. Even though we experienced a shortfall in FY03, which could recur in FY04, we are better positioned than many states to deal with this economic uncertainty.”

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