‘Great news for our economy.’ Kentucky posts 7th consecutive budget surplus
For the seventh consecutive time, Kentucky has posted a budget surplus. General Fund receipts for fiscal year 2026 in the Bluegrass State totaled nearly $16 billion, an almost 2% increase compared to the preceding year.
Revenue estimates from December 2025 projected a $156 million shortfall, but revenues came in at $320 million more than budgeted and exceeded last winter’s estimates by $476 million, indicating better than expected business tax collections and presenting a funding flexibility opportunity to the General Assembly.
In a July 10 statement, Kentucky Gov. Andy Beshear said the budget surplus was due in part to strong fiscal management by his administration as it balances cuts the General Assembly passed to Medicaid, behavioral health services and senior meals.
“This is great news for our economy, and it also presents our General Assembly with an opportunity, now that we have more financial resources, to address some of the budget cuts,” the governor said. “Our goal is to help Kentucky families, and we can do that by turning this good news and turning it into something great.”
Surplus revenues, according to the Office of State Budget Director, are largely tied to sales and individual income taxes. Sales tax receipts were 6.4% higher than last fiscal year and individual income tax receipts increased 8.7% in the first six months of the fiscal year before tapering off when a cut from 4% to 3.5% became effective at the start of 2026.
Other highlights from the annual receipts report include:
- Road Fund collections total $1.82 billion, a decrease of 2.2% from the previous fiscal year
- Individual income tax receipts rose 4.6%, $247.3 million more than the year prior
- Corporate income and liability entity taxes fell 21.9%, or $401.8 million, compared to last year, but were still higher than estimated
- Sales and use tax receipts were 6.4% higher than fiscal year 2025 levels on growth of $375.3 million
- Property taxes rose 1.6% on real property, which grew by nearly $16 million
- Revenues from the cigarette tax reversed a five-year slide and rose 1.1%, or $2.6 million in fiscal year 2026
- Coal severance tax collections in fiscal year 2026 were $63 million, almost $8 million more than what was estimated
- Collections from the Kentucky Lottery Corporation rose $19.3 million, or by 5.5%
State Budget Director John Hicks said sales and income tax growth rates, the state’s two largest revenue sources, are better than expected business tax collections and “reflect strength in the earnings of both Kentuckians and Kentucky businesses.”
While revenues came in at levels higher than expected, Kentucky Center for Economic Policy Executive Director Jason Bailey said the 1.7% growth rate falls short of inflation and marks the fourth straight year revenue has not kept up with cost growth.
“This slow growth, the result of the phase-in of state income tax cuts, is beginning to hamper the state’s ability to even maintain its support for schools, health care and other services,” Bailey said in a statement. “The new state budget passed by the legislature goes into effect this month, and the harm of these tax cuts is becoming apparent.
“... In the face of the trade-offs we now see, lawmakers should halt continued elimination of the individual income tax and focus instead on strengthening the vital services that can make all Kentuckians safe, healthy and educated and our economy strong.”
Eliminating income tax in Kentucky has been a priority for the state chamber of commerce and the GOP-led legislature as a way to entice businesses to locate in the Bluegrass State, increase the state’s economic competitiveness and give Kentuckians more individual financial freedom.
While the triggers weren’t hit in 2025 for the General Assembly to legislate another cut during the 2026 session, they were met in 2024, allowing the General Assembly to implement a tax cut from 4% to 3.5% on Jan. 1. The state’s personal income tax rate was 5% before a 2022 bill put Kentucky on its path to zero.
.JPG)