FRANKFORT, Ky. — Less than two months into Kentucky’s fiscal year, the state budget director is already warning lawmakers it will be a struggle to meet revenue projections because of COVID-19.
“We have many signals that fiscal ’21 will be a significant budget challenge,” State Budget Director John Hicks said while testifying before yesterday’s meeting of the Interim Joint Committee on Appropriations & Revenue. “It will have lower revenue than in fiscal ’20.”
He said that’s because much of the federal stimulus relief aid that has propped up Kentucky’s economy in recent months has ended. According to the state budget office, the federal government provided $15.4 billion directly to Kentucky businesses and residents through initiatives such as the Paycheck Protection Program and Economic Impact Payments. Those were the onetime payments of $1,200 per adult and $500 per dependent.
After the presentation, committee Co-chair Rep. Steven Rudy, R-Paducah, said he was concerned federal aid to all the states had put the country’s deficit on an unsustainable course. He said its size may jeopardize the financial health of future generations.
“We the people owe that money,” Rudy said. “I think we should be very cautious when continuing to ask for more federal bailout and more federal aid. What is this doing to the American dollar?”
Sen. Stephen West, R-Paris, said Kentucky received more than just the $15.4 billion in relief funds from the federal government. Hicks then explained the state also received $1.6 billion to help pay for services offered by cities, counties, local health departments and state government. Rudy added that neither of those figures included a $865 million federal, no-interest loan Kentucky took out to shore up its unemployment insurance trust fund.
Sen. Phillip Wheeler, R-Pikeville, wanted to know if Kentucky was going to utilize the Federal Emergency Management Agency’s Lost Wages Assistance Program to provide $400 in additional unemployment benefits for individuals. Under that plan, the federal government would pay $300 while states would pay the remaining $100, using Coronavirus Aid, Relief and Economic Security (CARES) Act funding. Hicks said an announcement was expected shortly, and after the meeting, the governor said the state would apply for the program as early as today.
Hicks testified that another challenge was the jobs lost during COVID-19. From March through April, Kentucky shed over 283,000 jobs, according to the budget office. That was 14 percent of the state’s employment.
Rep. James Tipton, R-Spencer, questioned the impact of small business closures on future employment numbers. Hicks said Kentucky had recovered about 125,000 jobs since the gradual reopening of the economy. He added that his office would soon release a quarterly revenue and economic outlook. Part of that report will contain a statewide employment forecast derived from national data.
Sen. Christian McDaniel, R-Taylor Mill, who is the committee’s other co-chair, asked whether the canceling of in-person schooling would hinder parents’ ability to work. Hicks said he has not seen any national data on the level of unemployment as it was associated with remote learning this past spring.
Hicks said the fourth quarter of last fiscal year already provided some insight into the future of Kentucky’s fiscal health. During that quarter, state revenue declined by 4.5 percent, sales and use taxes declined by 5.9 percent, withholdings (excluding unemployment insurance benefits) declined by 5.5 percent and business taxes declined by 16.5 percent.
“Wages and salaries for the fourth quarter … were down 16 percent,” Hicks said, “which is the largest loss we know of in terms of our economic staff looking backward.”
Rep. Myron Dossett, R-Pembroke, inquired about COVID-19’s impact on tourism in the state. Hicks said leisure and hospitality had a 15 percent drop in employment during a 12-month period ending in June of this year. He added that $1.16 million from the CARES Act was used to help plug a revenue shortfall at the state parks department.
Sen. Stephen Meredith, R-Leitchfield, then mentioned that pre-pandemic daily attendance at Mammoth Cave National Park was between 4,000 and 5,000 people. He said it is now just 800.
“The rippling effect of that is just phenomenal,” said Meredith, whose district includes the majority of the nearly 53,000-acre park.