BRADENTON, Fla. - Kentucky Gov. Steve Beshear is implementing actions to deal with a nearly $300 million shortfall in the general fund budget and a $71 million shortfall in the state's transportation fund. Beshear also has joined several other governors seeking federal assistance for the country's troubled auto makers.
Beshear has asked the state's Consensus Forecasting Group to formalize revenue projections for the fiscal year ending June 30, 2009, and then plans to address the shortfall with measures that will include spending cuts, he said late last week.
"This is a serious shortfall and it will require action," Beshear said in a statement. "But considering the extreme volatility of our economy, that action must be neither rushed nor rash. We are going to act decisively, but in a measured and strategic way."
Besear said the state "must intensify efforts to find cost-efficiencies in state spending."
Most state agencies reduced spending by 3% in the last fiscal year and they face additional cuts this year of more than 12%.
One of the largest declines in revenue supporting the general fund is in the state's use and sales taxes, which are down 65%. Such taxes partly are derived from Kentucky's considerable auto and manufacturing sectors.
Kentucky's economy is particularly vulnerable to weakening in the auto manufacturing sector, according to an Oct. 6 report by Moody's Investors Service. Ford Motor Co. is one of the commonwealth's largest employers, Moody's said, noting that declining consumer confidence and lower household discretionary income will be a negative factor affecting state employment and finances.
Failure of the U.S. auto industry would be a disaster, said Beshear and five other governors in a letter last Wednesday to Treasury Secretary Henry Paulson.
The reason, they said, is that U.S. automakers employ about 355,000 workers. Another 4.5 million work in sectors supported by the auto industry. More than two million receive health care benefits from one of the big three U.S. automakers and 775,000 retirees and their survivors receive pension benefits.
New vehicle sales are declining dramatically, in large part because purchases require financing consumers cannot get because of problems in the credit markets, the governors said.
In addition to Beshear, the governors of Michigan, New York, Ohio, Delaware, and South Dakota signed the letter.
According to published reports, some regulators in discussion with U.S. automakers have said no action will be taken until well after this week's presidential election.
Meanwhile, Beshear pledged to tackle the financial problems, although he said state government faces some severe economic challenges. But the state's credit has taken hits from two rating agencies.
Moody's has a negative outlook on Kentucky's Aa2 issuer rating. In October, the agency said the state's rating reflects a record of financial control, including close monitoring of revenues together with a history of proactive responses to lowered revenue estimates.
Fitch Ratings assigns a AA-minus to the Kentucky State Property and Buildings Commission, which is the state's primary bond-issuing agency. Fitch in April changed the agency's outlook to negative from stable, based on the state's plans to continue to deplete fund balances and budget reserves in the new biennial budget that began July 1.
Standard & Poor's maintains a positive outlook on the state's AA-minus issuer credit rating. In an April credit review, the most recent available, it Poor's noted that the state is experiencing growing pension and insurance unfunded liabilities, which further pressure a budgetary imbalance the state is working to correct.
