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Experts Say: KY Budget Surplus Should Be Invested In Communities

Kentucky News Connection

Experts say the state should use a portion of its almost $2 billion rainy-day fund surplus to invest in resources that will help Kentucky families and strengthen economic recovery. Thanks to federal relief from the CARES Act and the American Rescue Plan, the state deposited more than $1 billion into its rainy-day fund this year.

Jason Bailey, founder and executive director of the Kentucky Center for Economic Policy, noted despite the surplus, state lawmakers recently passed an austere budget, which freezes base funding for public schools, and have greenlighted nineteen rounds of budget cuts since the Great Recession.

"I think there's a concern that too much of it will end up just being locked away in the rainy-day fund and not used to reinvest in all of these needs, or that we may look at tax cuts again, as were passed in the last legislative session," Bailey outlined. "That would be a very poor use of these monies; these are dollars that our budget has long needed."

The state continues to see a surge in revenue. State General Fund receipts for July totaled more than $981 million, up 8.4% from the same month a year ago, according to the Office of the State Budget Director. Sales and business taxes primarily drove the increase.

Bailey explained while it is important to have emergency savings, padding the rainy-day fund at the expense of the broader economy could have consequences down the road.

He added not all states are seeing budget surpluses.

"Some states were hit much harder by the COVID recession, particularly tourism states like Florida or Nevada, and those states are not seeing surpluses, so it really varies," Bailey explained. "Now, most states do put their money into the rainy-day fund when they have a surplus."

He pointed out the spending of funds from the American Rescue Plan throughout this year makes it likely the state will see another large jump in revenue next summer.