Kentucky

State Fiscal Briefs

April 2021

Looking for Kentucky data related to the pandemic? We have health, economic, and fiscal data on our new tool, How the COVID-19 Pandemic is Transforming State Budgets.

Kentucky’s budget basics

According to the National Association of State Budget Officers (NASBO), Kentucky’s total expenditures in fiscal year (FY) 2020 were $39.8 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, Kentucky’s combined state and local direct general expenditures were $40.1 billion in FY 2018 (the most recent year census data were available), or $8,981 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,801.

Kentucky’s largest spending areas per capita were public welfare ($2,676) and elementary and secondary education ($1,669). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.

Kentucky’s combined state and local general revenues were $38.4 billion in FY 2018, or $8,611 per capita. National per capita general revenues were $10,071. Kentucky uses all major state and local taxes. After federal transfers, Kentucky’s largest sources of per capita revenue were charges ($1,442), such as state university tuition and highway tolls, and individual income taxes ($1,347).

Kentucky’s politics

Governor Andy Beshear, a Democrat, was elected in 2019 with 49.2 percent of the vote. The next gubernatorial election is in 2023.

Kentucky has a divided government. Republicans control both the House of Representatives (75 Republicans to 25 Democrats) and Senate (30 Republicans to 8 Democrats), with veto-proof majorities in both houses. All Kentucky House seats are on the ballot in 2022 because representatives serve two-year terms. Senators serve four-year terms; roughly half the senatorial seats are on the ballot in 2022, and the other half will be up for election in 2024.

Kentucky’s budget institutions, rules, and constraints

Kentucky uses a biennial budget. The legislature must pass a balanced budget, but it can carry a deficit over into the following year. A Kentucky budget rule also limits the amount of revenue the state can raise, and because it’s a binding rule, a legislative supermajority is required to override it. A supermajority is also required for any bill that raises taxes. There are limits on total debt service incurred by the state, but not on authorized debt.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

Kentucky’s recent fiscal debates

  • Kentucky has one of the nation’s worst-funded public pension systems: as of 2017, it has only a third of the assets necessary to fully fund its pension liabilities. In 2019, then-governor Matt Bevin signed legislation that allows quasi-government agencies (e.g., local health departments and universities) to leave the state’s pension system and transition employees to 401(k)-style retirement plans. Bevin said the reforms provide “much needed financial relief.” Critics argued the legislation did not address the state’s pension debt and could leave many low-income workers without retirement benefits. Concerns over pensions led to teacher strikes in both 2018 and 2019.
  • Kentucky was one of the few southern states that expanded Medicaid under the Affordable Care Act. In 2013, then-governor Steve Beshear, a Democrat, was able to unilaterally accept the new federal funds and broaden eligibility rules. His successor, Governor Bevin, campaigned on ending the expansion, but after his election he instead pushed for reforms such as imposing premiums on enrollees and adding work requirements. A federal district judge blocked the work requirements twice, arguing that the plans failed to consider the loss of coverage the requirements would lead to. Governor Bevin threatened to end the state’s Medicaid expansion if work requirements were not implemented. However, Bevin lost the 2019 election, and his successor, Governor Andy Beshear (Steve Beshear’s son), pledged to rescind the state’s work requirements.

Kentucky’s current budget

Governor Beshear released his FY 2021-2022 biennial budget proposal in January 2020. The proposed budget included $12 billion in general-fund spending in FY 2021 and $12.3 billion in FY 2022. If passed, this would have been the first biennial budget since FY 2007-2008 that did not include general-fund spending cuts. The proposed budget prioritized increased education spending, including a salary increase for teachers. On the revenue side, the governor proposed raising the state’s cigarette tax and levying a new tax on vaping products.

Because of the pandemic, however, Kentucky opted to only pass one year of appropriations instead of its typical biennial budget. The state enacted its FY 2021 budget in April 2020. This included $11.8 billion in general-fund spending, which is roughly $200 million decrease from the governor’s proposal but a slight increase over FY 2020 spending. The legislature passed the new tax on vaping products but did not increase the per pack tax on cigarettes. The enacted budget also did not include the proposed education spending increase and teacher salary raise because of revenue uncertainty related to the COVID-19 pandemic.

Governor Beshear released his FY 2022-23 biennial budget (an update of the special, one-year budget passed in calendar year 2020 plus the second year of the state’s traditional, biennial budget) and gave his State of the State address in January 2021. The governor announced that his budget does not contain any tax increases or spending cuts but instead relies heavily on federal aid from the CARES Act to achieve balance. The governor’s plan includes $11.8 billion in general-fund spending for FY 2021 and $12.2 billion for FY 2022; both totals are slightly below what he originally proposed for the biennium before the pandemic.

For more on Kentucky’s budget, see the