Reduced Kentucky State Revenue Forecast by Economists Prompts Vow from Beshear to Address Budget Deficit
Kentucky is projected to face a significant budget shortfall in the fiscal year beginning July 1, 2022, according to a forecast by the Consensus Forecasting Group. The state government is expected to fall $305 million short of its budgeted revenue expectations.
The reduction in state income tax rate, which has been decreasing in half-percentage point cuts since 2022, with the latest reduction effective Jan. 1, 2026, may have contributed to the shortfall. Gov. Andy Beshear requested the revised forecast two weeks ago, citing concerns about uncertainty surrounding federal tariffs affecting the economy and state revenues, as well as the General Assembly's decision to cut the state income tax rate.
Tom Loftus, a native of Cincinnati and a graduate of The Ohio State University, with a long career in Kentucky journalism, reported on the matter. Loftus is a member of the Kentucky Journalism Hall of Fame and a freelance reporter for the Kentucky Lantern.
The Consensus Forecasting Group discussed three scenarios for revenue projections, with the control scenario projecting a $305 million shortfall. The group also lowered its forecast for Road Fund revenue for this fiscal year by $82 million.
Despite the shortfall, it does not present cause for alarming spending cuts in Kentucky's current budget situation. The state's "rainy day" fund, which is used to cover revenue downturns, is expected to have a balance of about $3.7 billion at the end of the current fiscal year.
The state's General Fund collects money from most revenue sources and appropriates funds for most state programs. The Road Fund, the other major state fund, collects revenue for road construction and maintenance and other transportation programs.
Last fiscal year, sales and income taxes fell far below expectations in Kentucky. However, a year-end shortage was avoided only because of a windfall in one-time revenue from major business taxes.
The Governor's office issued a statement after the forecast revision, stating that steps will be taken in the coming weeks to address the shortfall without compromising services to the people of Kentucky. The upcoming budget will be significantly more difficult than in the last several years.
The Consensus Forecasting Group is expected to revise the current year estimate and project revenue for the 2026-28 budget in December. The state income tax rate reduction will continue to be a factor in the state's revenue projections.
This story is reprinted under Creative Commons license.
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