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The Associated Press July 13, 2011, 10:07AM ET

Ky. tax receipts grow faster than expected

Kentucky's tax collections bounced back in the past year to post their strongest growth rate in five years, a turnaround that Gov. Steve Beshear trumpeted on Tuesday as a sure sign of economic recovery in a state battered by the recession.

The state's general fund receipts rose for the first time in three years and surpassed pre-recessionary figures, he announced.

Beshear, who is in the midst of his re-election campaign, touted the stronger-than-expected revenue figures at a Capitol press conference.

"While the economic picture remains challenging for our families and our businesses, we are continuing to see clear signs of economic recovery," Beshear said in an upbeat report about the state's fiscal condition after rounds of spending cuts when tax revenues lagged.

He added that the revenue numbers offered more proof that Kentucky "has weathered the storm better than many other states."

Beshear tempered his assessment with concerns about the state's stubbornly high unemployment.

The economy is the central issue of the governor's race. It pits Beshear against GOP nominee and state Senate president David Williams. He and other Republicans have hammered away at Beshear for presiding over a statewide jobless rate that exceeds the national rate and neighboring states.

Williams warned Tuesday that the state's fiscal problems haven't disappeared despite the upturn in state tax receipts.

Speaking at a Kentucky Chamber of Commerce annual meeting in Louisville, Williams said the state has relied on one-time funds to make the economic outlook appear better than it is. Those funds included federal stimulus dollars, which pushed the problems off until after the 2011 election, Williams said.

Williams predicted that the state is facing a $700 million budget problem when the next legislative session begins in January.

"All this one-time money you have does you no good next year," Williams said. "When you do those one-time fixes, you get deeper and deeper in the hole."

Williams criticized Beshear for skipping the chamber session that focused on the state's economy and other issues. Beshear was scheduled to speak to the chamber group at an event later Tuesday.

Meanwhile, Beshear pointed to what he saw as a hopeful sign for the job-creation climate. He said an upswing in business tax revenues means companies are returning to profitability.

"Hopefully more of them will soon be reinvesting in new jobs," he said. "Nothing will help this state's economy more."

In an effort to put the state on more solid financial footing, Beshear said that much of the extra revenue collected in the past year will go into the state's rainy day fund.

University of Kentucky professor Ken Troske said higher receipts from individual income and sales taxes reflect growth in incomes and consumer purchases.

"However, it is important to keep in mind that the large rate of growth is occurring because we are comparing this year's tax revenue with last year's fairly low revenue," said the chairman of the school's economics department in an email.

"These numbers, combined with the slow but steadily improving unemployment numbers, show that the Kentucky economy is growing, but at a rate that is still too slow to produce a significant improvement in the labor market," he said.

State general fund tax receipts for the fiscal year ending June 30 totaled $8.76 billion, up 6.5 percent from the prior year and nearly 2 percent above the official revised revenue estimate.

Beshear said unbudgeted excess revenues amounted to $135 million, and more than $100 million will go into the rainy day fund.

Revenue collections grew in each quarter, capped by a 9.6 percent upswing in the fourth quarter, Beshear said.

Individual income tax receipts for the full year rose by $263.3 million, or 8.3 percent, from the prior year.

Sales and use tax collections increased 3.7 percent, or $102.2 million, which Beshear said was a sign that consumer spending is rebounding though the receipts fell short of the estimate by 1.5 percent.

Corporate income tax collections rose $62.9 million, or 26.4 percent, while coal severance taxes increased by 8.8 percent.

Cigarette tax receipts fell $16.1 million, or 5.7 percent.

Beshear noted that he has cut more than $1 billion in state spending during his term and has shrunk the executive branch work force to its smallest size in two decades. Many state agencies have endured budget cuts of 25 percent to 30 percent, and face more reductions in the budget for the next year. Kentucky operates on a two-year budget, and this coming year is the second year of the cycle.

"While balancing the budget will continue to be a challenge for the foreseeable future, today shows that we're headed in the right direction," Beshear said.

Meanwhile, state Road Fund revenues for the past fiscal year totaled $1.3 billion, up 11 percent from the prior year.


Associated Press Writer Brett Barrouquere contributed to this report.

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