Over the past two sessions, we have made a commitment to beefing up our state’s budget reserve trust fund through fiscally responsible policy. As a result of our efforts, Kentucky landed tenth in the nation for the number of days covered by our reserve balance, according to research by the Pew Charitable Trusts and a report issued by Route 50. The data is based on fiscal year 2021 numbers, and while most states are expected to spend down their funds, our fund will actually grow thanks to the dollars we allocated to the reserve in this budget that will take effect on July 1.
By strengthening our budget reserve trust fund, we knew we were making a historic investment in the future. This ranking confirms that our approach to the budget will benefit generations of Kentuckians by setting us up for long-term growth. While some called on us to spend millions on one-time allocations, we opted to save that money. As a result, we are in far better shape to not only weather tough times, but also to take advantage of opportunities.
According to the Pew report, a total of 23 states hit record highs. However, Kentucky led the nation by adding 51 days’ worth of operating costs to reach a total of 61. Kentucky now has almost twice the national average of 34 days of operating costs.
Because of this commitment to saving for the future, our state is far better prepared to face difficulties that may lie ahead. All signs point to a recession, and inflation is already driving up the cost of everything from the gas pump to the grocery store. While we know we will have to face some difficult times, the responsible choices we make today will allow us to come out on the other side.
While unknown challenges ahead are certainly important to prepare for, the budget reserve trust fund is much more valuable than the “rainy day fund” approach that past legislatures have focused on. The fund also helps position our state for projects and other opportunities that can invigorate economic growth. A healthy budget reserve trust fund helps our credit rating and makes us competitive for megaprojects like the Ford/SK Innovations Blue Oval Electric Battery Plant in Hardin County.
For decades we have talked about the rainy day fund and relied on it to make ends meet. We know we are never going to get anywhere if we do not change our mindset and look at the budget reserve trust fund as a way to invest in Kentucky. Because of the responsible state budget that meets our state’s needs without spending every dollar we had available, we are in just the position to see that investment pay off.
In addition to the record investment in the budget reserve trust fund, the historic spending plan passed this session included record funding for kindergarten through 12th grade, unprecedented improvements in postsecondary education funding, a responsible use of ARPA, and a continued commitment to paying down pension debt. The $31 billion budget also included pay increases for the Kentucky State Police, state employees, and social workers, as well as resources for local school districts to provide pay increases to their employees.
This session we also approved a tax modernization measure aimed at gradually eliminating the state’s personal income tax. The measure, HB 8, builds on reforms enacted in 2018 that left the state with record high economic investment, historic job growth, and on track to shatter revenue records before the pandemic. The modernization package includes a trigger that allows the 5% income tax rate to decrease to 4.5% in January of 2023 and sets the stage for future reductions as future revenue thresholds are met.
