A group of economists who set Kentucky’s economic forecast established an optimistic view this week for Fiscal Years 2023 and 2024. The outlook means Kentucky’s General Fund will increase by 3.4% for the current fiscal year to $15.2 billion and 1.7% in Fiscal Year 2024 to $15.5 billion.
The Consensus Forecasting Group (CFG) comprises 10 economists and professors from across the state. It operates independently of the legislature and establishes the forecast legislators use to develop the state’s biennial budget. Legislators adopted the current budget in the 2022 session and won’t pass a new biennial budget until the 2024 session.
General Fund revenues exceeded expectations by more than $945 million in Fiscal Year 2022. Greg Harkenrider, deputy executive director of the Office of State Budget Director, told CFG members that year-to-date revenue growth through November is more robust than projected at 6.4%. The Office of State Budget Director expects Kentucky’s wages and salaries to grow 7% in FY 23 and 3.1% in FY 24.
Incremental cuts to the state’s income tax kick in on Jan. 1, 2023, with the individual tax rate lowering from 5% to 4.5%. If Kentucky meets the conditions established in House Bill 8 (2022) next year, the rate will drop from 4.5% to 4% on Jan. 1, 2024.
New sales tax requirements are also in place, which Harkenrider said should bring in an additional $100 million in FY 24. That includes a new focus on taxing utilities for some residential properties. “Beginning Jan. 1, 2023, they’re going to tax residential utility services on second homes. On homes that are not primary residences,” Harkenrider explained.
CFG will meet again in August to review the economy and the impact of any potential measures legislators pass in the 2023 session.
The CFG did not amend the Road Fund forecast set in 2022. Road Fund revenues totaled $1.67 billion in FY 2022, 2% more than the previous fiscal year but below the budgeted estimate. Year-to-date Road Fund receipts increased by 2.3%. They must grow 3.0% over the remainder of the fiscal year to meet the official estimate of $1.7 billion. Motor fuels tax receipts increased by 1.1% in November and are up 0.9% for the year.
