Kentucky’s budget basics

According to the National Association of State Budget Officers (NASBO), Kentucky’s total expenditures in fiscal year (FY) 2021 were $42.1 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2021 were $2.7 trillion, ranging from $4.7 billion in Wyoming to $512.8 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 $39.8 billion in FY 2019 (the most recent year census data were available), or $8,906 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 $10,161.

Kentucky’s largest spending areas per capita were public welfare ($2,643) and elementary and secondary education ($1,714). 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 $40.2 billion in FY 2019, or $8,997 per capita. National per capita general revenues were $10,563. Kentucky uses all major state and local taxes. After federal transfers, Kentucky’s largest sources of per capita revenue were charges ($1,511), such as state university tuition and highway tolls, and individual income taxes ($1,383).

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 24 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 current budget

Governor Beshear released his FY 2023-2024 biennial budget proposal and gave his state of the state address in January 2022.

Kentucky enacted its FY 2022 budget in April 2021. The enacted budget included $42 billion in total spending and $12.1 billion in general fund spending. The general fund spending was a 5.7 percent increase from the previously enacted budget. Kentucky typically enacts biennial budgets, but because of the pandemic, it passed one-year budgets for both FY 2021 and FY 2022.

Under the American Rescue Plan, Kentucky will receive $2.2 billion in direct state fiscal aid and $1.3 billion in local government aid from the federal government. As of January 2022, Kentucky had spent part of its ARP funds on refilling its unemployment insurance trust fund, broadband expansion, and the public health response to the pandemic.

According to NASBO, Kentucky’s recent expenditure totals (general fund spending/total spending, including federal transfers) were:

• FY 2021: $11.4 billion/$42.1 billion

• FY 2020: $11.6 billion/$38.4 billion

• FY 2019: $11.6 billion/$33.6 billion

For more on Kentucky’s budget, see the

• Kentucky State Budget Director.

Kentucky’s economic trends

Kentucky’s per capita income (per the Bureau of Economic Analysis) was $50,699 in 2021, ranking 46th among the states. It was below both the national average of $63,444 and the Southeast regional average of $56,118. The state’s median household income (five-year estimate) was $52,238 in 2020, ranking 44th among the states and below the national average of $64,994. Kentucky’s poverty rate was 16.6 percent in 2020 (five-year estimate), above the national rate of 12.8 percent.

Although Kentucky’s averages tell a story about the entire state, Kentucky is composed of diverse localities. For example, the city of Paducah’s median household income was $39,061, and its poverty rate was 21.8 percent; the city of Independence’s median household income was $79,929, and its poverty rate was 8.5 percent.

Kentucky’s unemployment rate has historically been slightly above the national average. (See how COVID-19 is affecting state employment and earnings data.)

Unemployment rates (like other economic indicators) often vary significantly by race and ethnicity. In Kentucky, the average unemployment rate in 2021 was 4.5 percent for white residents, 6 percent for Black residents, and 3.6 percent for Hispanic or Latino residents. (This is preliminary data. See the 2020 data for a more detailed breakdown of state unemployment rates by race and ethnicity.)

The major industries that contributed the most to Kentucky’s gross domestic product (GDP) in 2020 were manufacturing, finance, government, social services (i.e. health and education), and professional services. Manufacturing, government, and social services contributed more to Kentucky’s GDP than they did to the nation’s and region’s GDP, while finance and professional services were less important to Kentucky than they were to the nation and region in 2020.

Looking at more specific industries, among those that accounted for at least one percent of Kentucky’s GDP in 2019, motor vehicle manufacturing produced far more for the state than for the nation, contributing 4.3 percent to Kentucky’s GDP and 0.8 percent to the nation’s. Other industries that overperformed in Kentucky relative to national averages in 2019 were food and beverage manufacturing, wholesale trade, miscellaneous transportation, and primary metal manufacturing.

Kentucky’s demographics

As of July 2020, Kentucky’s population was 4,477,253. That was up 3 percent from 2010. The state’s population growth rate was slower than than the nation’s 6.5 percent growth over the same period. The Urban Institute estimates the state’s population will increase 10.6 percent between 2010 and 2030, less than the nation’s estimated growth rate of 16 percent.

Additional resources

• The State and Local Finance Initiative’s Backgrounders explain the tax and spending issues highlighted in these briefs.
  
• The State Economic Monitor presents updated data and customized visualizations of state economic indicators.
  
• State and Local Finance Data: Exploring the Census of Governments allow users to sort, customize, and download the Census of Governments State and Local Finance series data featured in these summaries.
  
• The State Tax and Economic Review series provides quarterly reports on state tax collections and underlying economic trends in all 50 states.
  
• The Urban Institute’s State Tax Data Subscriptions provide access to up-to-date revenue data in all 50 states.