By Mark R. Chellgren
The Associated Press

FRANKFORT - The revenue outlook for this year and next is slightly better than initially expected, but still $350 million short of what the current budget was built upon.

The revenue shortfall, plus growing spending needs add up to an even larger budget problem.

"These numbers are starting points, not finishing points," deputy budget director Bill Hintze said Friday after the official revenue forecast was made for this year and next.

The Consensus Forecasting Group projected the general fund will take in $6.768 billion this year, or $169 million less than the number on which the current spending plan is based.

The forecast for the fiscal year that begins July 1, 2003 is $7.033 billion, or $186 million less than originally expected.

The estimates will complicate what is already a gloomy budget problem facing the General Assembly, which couldn't even pass a budget in two tries earlier this year because of disagreements over much smaller sums.

The state has been operating since July 1 on a spending plan imposed by Gov. Paul Patton when the legislature failed to pass a budget.

Mr. Hintze said the state may not be taking in as much money from the sale of pollution credits, which further exacerbates the revenue side of the budget.

And huge problems loom on the spending side of the ledger.

Some lawmakers have estimated the budget shortfall could reach $400 million this year alone, though that figure has been questioned.

Education spending and the costs of providing health care to Medicaid recipients are rising faster than expected, Mr. Hintze said.

Under the formula for state aid to schools, districts receive about $3,149 per student, but enrollments are higher than expected and local tax assessments are lower, which could drive up state obligations.

Medicaid costs are rising because more people are eligible, which is also a function of the economic problems.

The forecasting group is made up of academic economists and state government analysts.

The current recession caught them off guard last year, which accounted for the current revenue shortfall.

With the continuing problems, the group seemed inclined Friday to take an even more conservative approach to revenue estimates, which must be used to create a budget.

Bob Cox, deputy director of the state office of economic analysis, said he believes the new official estimates are too low.

But Transylvania University economist Larry Lynch said Kentucky always lags behind the national economy, which could delay any rebound.

"I'm comfortable," said University of Kentucky economist Merl Hackbart, a former state budget director, once numbers were massaged.

The legislature returns on Jan. 7, but faces a constitutional wrinkle in trying to approve a budget.

In the odd-year session, it takes three-fifths majorities in both the House and Senate to approve a budget - 23 votes in the Senate and 60 in the House - rather than a simple majority of 19 in the Senate and 51 in the House.