State Budget Director reports on General Fund gains as economists say labor participation rates are lagging.
Wednesday’s meeting of the Interim Joint Committee on Appropriations and Revenue included testimony from Budget Director John Hicks regarding the final outlook for the state’s fiscal year 2022 general fund. Hicks opened by telling lawmakers that this was, “one of the best fiscal pictures we’ve had.”
The $12,827,400 in General Fund receipts equaled a 10.9% increase from FY20. Hicks called it the largest growth rate in 26 years.
Sales and Use (+12%), Individual Income (+7.9%), and Corp Inc & LLET (38.1%) each finished FY21 ahead of FY20 totals. Property tax increased 9.2%.
Those increases lead to a General Fund surplus of $1.172 billion. Hicks said, when spending lapses are reduced ($41.2 million), the state will deposit $1.162 billion into its’ rainy-day fund which brings that fund’s balance to $1.92 billion or 16% of the FY22 General Fund appropriations.
Hicks also noted increased road revenues of nearly $7 million. Office of Budget and Fiscal Management Executive Director Robin Brewer testified on Tuesday that Road Fund revenues closed FY21 at $748.4 million.
While there was no discussion in this hearing about how to address needed road funding modernization, during a Wednesday hearing of the Budget Review Subcommittee on Transportation, Representative Samara Heavrin (R-Leitchfield) asked Brewer whether she supported a motor fuels fee increase. Brewer said the position has always been to support what is needed to properly fund essential infrastructure.
Heavrin responded, “I think it’s important that we all work together and that all sides come together to have this conversation; to come forward rather than put it on one person or one body to make the decision. As we see construction rates and everything skyrocket right now, and until we are going to be serious having this conversation, it’s great for us to see numbers, but I think it’s a joint conversation we all need to have.”
The motor fuels tax is the only portion of the Road Fund that is shared with local governments to ensure the maintenance and construction of community streets and bridges. Cities maintain more than 10,000 miles of public roads – streets are more expensive to build and preserve due to requirements such as curbs and gutters, Americans with Disabilities Act (ADA) required sidewalks, and stormwater drainage. Cities have seen spending on streets and roads climb 36% from FY 2010 to FY 2019, while state and federal support has dropped nearly 24%. Recently, the KLC Board of Directors voted to work with the legislature to fix the state’s road funding shortage in the 2022 session.
The committee also heard testimony on inflation from Mike Clark, Director of the Center for Business and Economic Research (CBER). Clark said that inflation is beginning to increase which raises questions as to whether prices of goods will see a steady increase.
While Clark reported that the economy continues to improve, and employers look to hire more workers, labor force participation remains low. While state unemployment rates appear similar to pre-pandemic levels, he said the statistic can deceive because labor force participation is lower than before COVID-19 arrived in the Commonwealth.
He cited health concerns, access to childcare, increased retirements, skills mismatched to geography, and enhanced unemployment benefits as factors in the labor participation rate. Clark said it’s unclear how much each of those factors contribute.
He anticipates inflationary pressures will increase into 2022 before it begins to ease.
