Surplus in state dollars seen following tax reforms and other economic changes

Kentucky saw growth in revenue in 2019 following changes to the state’s tax code and other factors, according to the state’s budget experts. That additional money will be spent on the state’s pension ailing funds.

In a meeting of the Interim Joint Committee on Appropriations and Revenue on Tuesday, State Budget Director John Chilton and other state budget experts presented the final revenues for the 2019 budget year and gave projections for the coming year.

A surplus of $194 million was seen in 2019, according to the officials. After necessary government expenses and money going to justice costs, the remaining $130 million is being distributed to the Kentucky Teachers’ Retirement System (KTRS) and the Kentucky Retirement System (KRS) as a result of legislation in recent years.

Some of the excess revenue seen in 2019 came from changes to the state’s tax code made by the legislature in the most recent regular session. The main impacts from those changes were increased revenue collected from a higher cigarette tax, and more money coming in from property taxes, coal severance money, the lottery, and others.

Small changes were made to the sales and use taxes as well as the individual income tax, which resulted in a total gain of 1.1 percent for the state, while the lowered corporate tax rate led to a decrease of 3 percent.

Looking ahead, officials warned that the large increase in the revenue from the cigarette tax is not sustainable and will likely decrease in the coming years due to fewer people smoking. They noted that fewer people smoking is positive but it causes the cigarette tax to not be a sustainable source of funds.

Changes have also been seen in the state’s “savings account” known as the Budget Reserve Trust Fund. Budget Director Chilton stated the fund started with $93.8 million at the beginning of 2019 and ended with $129 million after regular appropriations into the fund and excess funds from the judicial branch budget.

That fund is expected to reach $306.1 million in 2020, but Chilton noted that is only 2.7 percent of the state’s General Fund, while other states seek to have 5.5 percent in similar accounts, which he stated Kentucky has not reached in “many, many years.”

Corrections costs were discussed as a decrease was seen from last year but cost drivers including overtime, operational costs, and private prison costs still exist and many of the correctional facilities are already overcapacity.

On the Road Fund, the officials stated there was a small surplus in that budget during 2019 but there was also less money spent on projects than budgeted for the year. When asked about the hit the state will take in the coming years due to the loss of federal toll credits, Deputy State Budget Director Greg Harkenrider stated that was not taken into consideration when crafting predictions for the coming years and even without that factor, growth is expected to be very low.

As for the coming years, the experts stated they expect some growth but warned of declining revenue in many areas.