Kentucky’s General Fund tops $15B, an increase of less than 1%
Revenues for Kentucky’s state government increased by less than 1% during the most recent fiscal year ending June 30.
It’s the lowest rate of growth since the state lost revenue in the years following the recession and is a significant drop since record-setting years of double-digit growth in 2021 and 2022.
The state’s General Fund for the year totaled $15.7 billion, according to general and road fund receipts reported by the Office of State Budget Director on July 10. Estimates in the state’s budget anticipated no growth for the year, but figures in the report show an increase of 0.8%, or an additional nearly $132 million in revenue.
The unpredicted increase is a result of the growth of revenue from business taxes that covered losses from decreases in the state’s two largest sources of income: sales and income tax.
Receipt reports track where money comes from and are then used to inform budget decisions and other state government financial planning. Kentucky’s Office of State Budget Director produces the reports monthly and then for every fiscal year.
Budget surplus amounts will be known by the end of the month, according to the receipts report, and a separate document accounting for spending will be delivered to the General Assembly before it considers its next budget and other related tax and spending legislation.
According to the report, sales tax revenues totaled $5.8 billion, about the same as the previous fiscal year, and $250 million less than what was projected. Income tax revenue for the year was $5.3 billion, $490 million less than last year and $277 million less than expected.
Combined taxes on the state’s corporations and other businesses brought in $1.8 billion, an almost 47% increase from the previous fiscal year or an addition of $585 million. Last year, the state set a record for business taxes at $1.25 billion.
“Major business taxes far exceeded the official estimates offsetting lower than forecasted income and sales tax receipts,” said State Budget Director John Hicks in the report. “Strength in business taxes demonstrates that Kentucky businesses are producing at a profitable level.”
Some of the loss in income tax is likely the result of an already years-long effort to get the rate to zero. In 2022, the Kentucky General Assembly set up a process for itself to continually cut the state’s income tax rate by 0.5% per year. That year, legislators cut the rate from 5% to 4.5%. During the 2025 session, it went from 4% to 3.5% and will take effect at the start of 2026.
There are some other rules in the legislation that allow for larger incremental cuts if certain conditions are met especially when revenues exceed spending or when the rainy day fund is a certain percentage of money brought in for a particular fiscal year. The legislature has also set itself up to make cuts less than 0.5%.
This year’s revenue numbers raise not-so-surprising concerns for Kentucky Center for Economic Policy Executive Director Jason Bailey who posted to social media July 11, “The only thing preventing a large budget deficit this year was growth in corporate tax revenues, a notoriously volatile revenue source.”
“Weak revenue growth is happening at the same time Congress has passed the (One Big, Beautiful Bill Act), which shifts the cost of potentially hundreds of millions of dollars for SNAP food assistance to the Kentucky state budget and makes massive cuts to Medicaid,” Bailey said. “... Tariffs and federal budget cuts are slowing and disrupting the economy at the same time state tax cuts are harming receipts and new burdens are being shifted to the commonwealth.”
Road fund revenues for the year total $1.86 billion, a decrease of 0.6% compared to the previous year, or about $11 million less than 2024 revenues. The road fund, which pays for infrastructure projects with taxes on gas and vehicle sales, was about $39 million more than anticipated.
Hicks, the state’s budget director, said in the report the use taxes paid on new and used car purchases “provided the collections needed to surpass the official estimate by $38.5 million” and is “evidence that Kentucky consumers are earning working wages sufficient to finance these purchases.”
There are other receipts in the report that show the state’s income from the Kentucky Lottery Corporation, property taxes and income from investments were all up. Cigarette taxes and coal severance taxes were down in the fiscal year, the report shows.
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