With wise decision-making in the next General Assembly session, Kentucky’s legislators and governor have a never-before-seen opportunity to invest in education and infrastructure, including health supports. It would forever improve life for commonwealth residents and make future state budget-writing more pleasant.
The state ended fiscal 2021 with a surprise $1.1 billion budget surplus and can expect another such surplus this year, according to Consensus Forecasting Group estimates. The commonwealth’s often-parched rainy-day fund is at nearly $2 billion and is heading toward $3 billion. In May, influential Fitch Ratings upgraded Kentucky’s financial outlook from “negative” to “stable.”
The economy is growing at a muscular rate. Business tax categories continue to grow by 8 and 10%. Frankfort’s goal should be to capture this growth permanently by investing the surplus into programs likely to generate jobs, higher incomes and thus wealth. That means education and infrastructure.
Education is known as “the tide that lifts all boats,” and we can say infrastructure puts the boat in the water. The business community always votes yes to both.
Kentucky came into fiscal ’21 with the Budget Reserve Trust Fund at an all-time high $466 million after ending ’20 with a $177 million General Fund surplus. Our dire pension funding position has stabilized. Credit frugal (wise) budget decisions by recent legislatures and administrations.
Credit also decisions in Washington to pump cash into a crashing economy when pandemic responses necessary to protect public health literally closed many businesses and shut down sectors of the economy such as travel and hospitality. Stimulus checks and increased unemployment benefits kept homebound consumers spending (about 70% of the U.S. economy). Kentucky’s key logistics sector won as e-commerce surged.
Income, sales and business taxes are 80% of the General Fund, according to the Kentucky budget director’s office. Business taxes that grew less than 2% annually the previous five years jumped 38% in FY21. Personal income tax revenue grew almost 8%. General Fund receipts the first month of fiscal 2022 were up 8.4% from July a year ago.
Stimulus payments are probably finished, but higher rates of e-commerce likely are a permanent trend.
The current opportunity to better ourselves comes on top of the bipartisan Building a Better Kentucky plan the governor and legislators set up last spring to direct $1.3 billion in federal American Rescue Plan Act funds to boost the state economy. The plan will build new schools, deliver clean drinking water and expand broadband access. This is expected to create 14,500 new jobs.
There are lots of ideas about how to use the surplus. If Frankfort asks the state business community for advice, it will hear a united chorus: boost workforce development. Workforce size and skills have been the top concern of all business sectors globally for at least a decade.
Improving vocational and postsecondary education is the best strategy to improve Kentucky’s competitiveness and grow our economy, increase private and public income, and generate wealth. Frankfort got it right with Building a Better Kentucky. This will be doubling down on a good bet.
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