Word received last week that state revenues were higher than expected in March is good news for all of us. Not only does it mean that the economy could be on the rebound, but it could save us taxpayer dollars by eliminating the need for the governor to call a special legislative session to boost revenues in late 2009-2010. 

State lawmakers were as happy as anyone when budget officials announced March revenues were at the same level they were in March 2008. We expected a revenue decrease, and had planned for one last session when we made major legislative changes to deal with a projected $456 million shortfall through June 30. Now, given the March revenues, some lawmakers say we might end this fiscal year with $100 million more than anticipated.

Having an extra $100 million or so in the state’s coffers this fiscal year because of better than expected revenues could mean more than a possible turnaround in the economy. It could also mean some relief for state agencies, most of which have suffered budget cuts in both years of this budget cycle, although it would not eliminate the entire budget shortfall. But I have to admit that the possibility of that revenue does make me more optimistic about our current budget situation.

Not everyone is as optimistic, including budget officials in Governor Beshear Administration who are concerned about a drop in state income tax revenues last month. Those officials also anticipate a fairly hefty budget shortfall next fiscal year despite decent overall March 2009 revenues. But even those individuals agree with key lawmakers that rosier-than-expected April revenue numbers could indicate an economic recovery is in the works.

What, if any, corrective action will have to be taken this fiscal year to deal with a shortfall next fiscal year is expected to become clear the week after the Kentucky Derby, when Gov. Beshear says he may request an official revenue forecast. It is that forecast that will likely determine whether a special session is called to boost revenue for fiscal year 2010. For now, though, it is nice to have an upswing in an economic that has been riding low for well over a year.

Budget shortfalls--which occur when spending needs outweigh revenues--are not new to the Commonwealth. Kentucky has been dealing with what some could call “garden variety” shortfalls in Medicaid and even in the state’s General Fund for at least a decade. But shortfalls of half a billion dollars like we are experiencing now are not your garden variety. And the irony is that these massive shortfalls tend to grow even larger during times of deep recession since the need for state services increase as people lose their jobs or poverty increases. A spike in expenditures in the state Medicaid program, Corrections (which now spends about half a billion dollars a year on a growing inmate population) and other essential state services in recent years have made that pretty clear.

Lawmakers have taken steps to lower Corrections costs, and get a better rein on Medicaid, which is the state’s second largest expense behind education. And we are seeing some good results--even unexpected results.

The most welcome result as of late is a sharp decrease in growth in prescription drug spending, a well-known contributor to high Medicaid costs and private health insurance costs. Kentucky was one of 31 states, according to the National Conference of State Legislatures, that spent less on Medicaid prescription drug coverage in 2007 than 2006, something NCSL called “a hopeful sign for policymakers worried about keeping health care affordable, both to patients and to the public and private payers.”

What are the reasons for this drug cost slowdown? NCSL cites increased use of generic drugs, expiration of patents on widely-used drugs, $4 generic drug programs at retailers, and Medicaid savings regulated by states to name a few. A change in prescription drug buying habits by elderly Americans could be a big factor, according to an annual report by AARP released this month. That report indicates that more older Americans are switching to lower-cost generics as prices of popular brand-name prescriptions continue to rise. AARP was quoted on the health information site EmaxHealth.com as saying they will continue to encourage older folks to use generics when possible, as well as lobby for reduced drug prices.

An economic turnaround takes time, but the more we can do as lawmakers, a state and a nation to control our spending the fewer “shortfalls” we will have. For now, as far as state government goes, I will keep hoping that April revenues give us what we need to keep any future spending cuts to a minimum.