Kentucky saw record high state revenue collections in December but the state budget director says it may be an aberration spurred by changes in federal tax law.
Revenues supporting the general fund were $1.14 billion, an 11.2% increase over collections in December 2016, State Budget Director John Chilton said Wednesday. Property tax revenue collections rose 33.3%.
“The concern with a very large month of tax receipts is that what appears to be actual growth could be merely an acceleration of revenue that would have been realized in later months of the fiscal year,” Chilton said.
Federal tax law changes in late December, he said, could have prompted some taxpayers to send estimated tax payments prior to the end of the calendar year.
Starting this year, deductions for state and local income, sales and property taxes will be capped at $10,000 under the Tax Cuts and Jobs Act signed into law days before Christmas. Provisions in the law will apply to federal taxes filed in 2019.
“The acceleration of those payments could have swelled the income tax coffers in December,” Chilton said. “Overall, December’s strong growth is certainly encouraging and seems to be consistent with the recent estimates by the Consensus Forecasting Group, but the fiscal year is only half over.”
The official revenue forecast, revised by the CFG on Dec. 15, calls for 2.3% revenue growth in fiscal 2018.
Actual receipts of $5.4 billion through the first six months of the year are only $40 million ahead of the CFG projection and, according to the budget director’s office, revenues need to grow 1.5% in the last six months of the fiscal year to meet the estimate.
With revenue growth sluggish and pension liabilities pressuring expenses, Kentucky faces a $1 billion gap in the two-year budget before lawmakers, who are in session through mid-April.
Gov. Matt Bevin, a Republican, will present his proposed budget to lawmakers on Tuesday, with recommendations for closing the deficit. He has indicated cuts will be necessary even in some programs typically protected from them, such as K-12 and Medicaid.
Bevin and the GOP-led Legislatures have also said they will tackle pension reform.
More than 100 bills have been introduced this year on matters including child protection, tax reform, drones, and drug treatment, according to a weekly legislative report.
With some of the worst-funded pensions in the country, lawmakers have proposed bills aimed at increasing contributions to the Kentucky Retirement Systems through sin taxes and sports betting.
House Bill 82 would increase to 14% from 11% the wholesale sales tax rate for beer, wine, and distilled spirits, and deposit three-fourteenths of the tax collections into the “underfunded pension trust fund” to be established in the state treasury.
Senate Bill 22 would “declare it the policy of the Commonwealth to encourage the conduct of wagering on sporting events, when allowed by federal law,” and direct 60% of licensing fees to the Kentucky nonhazardous employees Retirement System and the Kentucky Teachers' Retirement System.
Under the program, betting on collegiate athletic and professional sports events would be supervised by the Kentucky Horse Racing Commission. A horse racing track or off-track wagering facility would pay a first-year license fee of $250,000 and $25,000 for an annual renewal fee.
House Bill 41 would expand the state’s gaming by adding four free-standing casinos to the seven that already exist in the state. Local voters must approve the facilities, which would offer cards, dice, roulette wheels and electronic gaming such as slot machines.
The initial 10-year license would be $50 million, with a $6 million annual license fee after that. The General Assembly would decide how much in excess of administration and oversight costs go to the Kentucky Retirement Systems.
House Bill 42 would direct 100% of casino licensing fees and taxes, after administration and oversight, to KRS.