ASHLAND — As a clear indication that Kentucky’s economy is steadily improving, state revenue for the fiscal year ending June 30 surprised even the experts. In fact, the final numbers surpassed by $83 million the projections of the Consensus Forecasting Group, the panel of economic experts from state universities charged with projecting state revenue.

 Under Kentucky law, the projections of the team of economic experts provide the numbers on which the Kentucky General Assembly bases its two-year budget, and if state revenue continues to exceed the panel’s projections, it may be possible for legislators to amend the lean budget they approved in April to increase spending in critical areas. The budget that went into effect July 1 cut spending in most state areas, including elementary and secondary education and the state’s system of higher education.

While the final figures are not in, Budget Director Mary Lassiter said the higher-than-expected revenue numbers mean the state likely ended the fiscal year with a surplus. If so,  Lassiter said the money would be applied to necessary government expenses or deposited in the state’s rainy day fund.

Senate Republican Leader Robert Stivers said the revenue report reflects a balanced budget, good news at a time when the state’s top accountants are concerned about “continued volatility” in the economy.

“It gives us a little cushion, but very little, going into the next fiscal year,” Stivers said. “The raw numbers sound great to the individual, but when you take it as being just 1 percent of the overall state budget, it’s a small amount.”

The no-frills budget denied pay raises to Kentucky’s more than 30,000 state government workers and stripped cost-of-living increases from the pensions of government retirees.  The budget requires 8.4 percent spending cuts for most government agencies in the coming year, an especially difficult task for agencies that have already trimmed their budgets by more than 30 percent over the past four years.

Revenue for the fiscal year that just ended totaled $9 billion, which was 3.8 percent higher than the previous fiscal year. That’s far from robust growth, but it’s certainly is an improvement over recent years. Because revenue repeatedly fell short of the Consensus Forecasting Group’s projections in recent years, Gov. Steve Beshear and state legislators have been forced to order cuts in the budget in order to keep the it balanced as required by the Kentucky Constitution. The current numbers indicate Kentucky will not have to make cuts in its budget during the next two years, and it may even be able to add to the budget.  

Most sources of state revenue showed improvement during the fiscal year that just ended. Kentucky’s biggest revenue producer of the past fiscal year was the individual income tax, which generated more than $3.5 billion, an increase of $94 million over the year before. The state’s sales tax generated $3 billion, up by $156 million the year before. Property taxes hit $530 million, up by $15 million.

The corporate income tax generated $374 million, up from $300 million. And the coal severance tax edged up slightly to $298 million from $296 million the year before. That increase came despite heavy losses in coal severance revenue between April and June.

Even one of the few sources of tax revenue to decline during the year is a positive. Revenue from the state’s tax on cigarettes fell by $7.4 million to $255 million. When the General Assembly doubled the state’s tax on cigarettes to 30 cents a pack, Beshear said the tax hike was more about encouraging people to stop smoking than about raising revenue. The declining revenue from the tax is a sure sign that it is having the desired effect.

It is much too early for the governor and the General Assembly to think about increasing spending based on the improved revenue picture, but there is reason for real hope.

The 2013 General Assembly can help the state’s revenue picture even more by enacting a fair and extensive tax reform package.  A task force headed by Lt. Gov. Jerry Abramson is developing tax reform proposals that Beshear will propose to legislators. With no elections in Kentucky in 2013, there is no better time for legislators to approve extensive tax reform, something  both  Republicans and Democrats have been saying for many years that the state needs.

Unfortunately, during his first five years in office, Governor Beshear has compiled a dismal record for getting legislators to adopt his proposals. That needs to change in 2013. Maybe with no election on the agenda, the governor and legislators can quit playing politics and try to accomplish something to benefit the entire state.

One can always hope.