Saturday, May 15, 2004

State projecting surplus this year

Tax revenues increase after three years of deficits

The Associated Press

FRANKFORT - Tax revenues are up, and Kentucky could have at least $70 million more this fiscal year than had been expected, experts say.

Some lawmakers say the money could be saved for future budget problems or could help the House and Senate overcome differences to pass a budget. Gov. Ernie Fletcher said he wants to add $10 million to education spending for the next two fiscal years.

Budget shortfalls have forced spending cuts in the past three years. But strong retail sales have boosted sales tax income above expectations.

"Clearly, the recovery has been stronger than we previously estimated," said Merl Hackbart, a University of Kentucky finance professor and a member of a state economic forecasting panel.

Another panel member agreed. "It looks like we have turned the corner. We've been waiting for this for a long time," said Larry Lynch, a professor emeritus of economics at Transylvania University.

Fletcher administration Budget Director Brad Cowgill said he fears inflation and soaring oil prices could stall the recovery.

"But overall it will be only a slight uptick in the $7 billion General Fund. Given the uncertain future revenue outlook and various other problems in any budget that might be passed, we need to be cautious," Cowgill said.

Some retailers say sales have increased.

"We did very well in February, March and April," said A.F. Dawahare, chairman of the Lexington-based Dawahare's clothing store chain. "... Part of it is due to changes we've made, part of it is the economy. And the weather's been great."

Bruce Pieratt, president and chief executive officer of a family-owned business that operates five furniture and major appliance stores, said he hasn't seen such an increase.

"We've had some growth, but nothing like 10 percent over last spring. We've found sales this spring to be sort of flat - up in some locations, down in the others," Pieratt said.

Legislators and revenue experts expressed caution about planning to spend any surplus.

The House and Senate adjourned without agreeing on a budget for the two-year period that begins July 1 because the House rejected the Senate's insistence that the budget include Fletcher's tax reform plan. Unless that deadlock is resolved, Fletcher may impose his own spending plan.

Rep. Harry Moberly, the Richmond Democrat who is chairman of the House budget committee, and Senate Republican Leader Dan Kelly of Springfield both said they want a revised official forecast of revenue to help budget any surplus produced this year and any over the next two fiscal years.

"We do have to be cautious," Moberly said. "But I think Brad Cowgill is being a little more pessimistic than reality. I think we're seeing signs of a sustained recovery and there's some disappointment within the administration that this is occurring before they passed their tax modernization plan."

Still, Moberly said the expected surplus would not be enough to fund major increases in spending.

"If a new forecast would give us more money, about the most we could do is be able to fund for many programs the higher of what was proposed by either the Senate or the House. Naturally, a priority for the House would be to fund the higher teacher salaries," Moberly said.

The House's proposed budget would provide raises for state workers and teachers of 3 percent next year and 4.5 percent in 2005-06. The Senate's plan would fund smaller raises of 2 percent next year and 3.5 percent in 2005-06.

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