Reduced Kentucky State Revenue Forecast Leads to a Decline of 2%, Governor Beshear Commits to Addressing the Budget Deficit
Kentucky Faces $305 Million Revenue Shortfall in Current Fiscal Year
The state of Kentucky is facing a shortfall of $305 million in its general revenues for the current fiscal year, according to a new projection by the Consensus Forecasting Group. This revised forecast, which also lowered the expected annual revenue by about 2%, has raised concerns about the state's budget for the upcoming years.
The Consensus Forecasting Group, responsible for state revenue forecasts, cited concerns about the trend in sales and income tax receipts, uncertainty over trade and tariffs, and the General Assembly's decision to cut the state income tax rate as factors contributing to the revenue shortfall. The state's income tax rate was reduced from 4% to 3.5% effective Jan. 1, 2026, marking the latest in a series of half-percentage point income tax rate cuts lawmakers have approved since 2022.
Tom Loftus, a native of Cincinnati and a graduate of The Ohio State University, reported the story as a freelance reporter for the Kentucky Lantern, a part of States Newsrooms. The state's sales and income tax revenues fell far below expectations in the last fiscal year, necessitating a windfall in one-time revenue from major business taxes to avoid a year-end shortage.
Despite the shortfall, steps will be taken in the coming weeks to address the issue under the Budget Reduction Plan, without compromising services to the people of Kentucky. The state's "rainy day" fund, which covers revenue downturns, is expected to have a balance of about $3.7 billion at the end of this fiscal year.
The state's General Fund collects money from various revenue sources, including sales and income taxes, business taxes, property taxes, the lottery, and is used for most state programs. The other major state fund is the Road Fund, which collects revenue from the gasoline tax, the sales tax on vehicles, drivers' and vehicle licenses, and other transportation taxes.
The person responsible for determining the Kentucky government budget for 2026-28 by the 2026 General Assembly is the State Budget Director. The Consensus Forecasting Group will revisit the current year estimate and project revenue for the 2026-28 budget at its December meeting. The revised state's 2025-26 budget's projected revenue has also been revised downward.
Gov. Andy Beshear requested the revised forecast two weeks ago due to concerns about uncertainty surrounding federal tariffs and their potential impact on the economy and state revenues. The Consensus Forecasting Group lowered its forecast for Road Fund revenue for this fiscal year by $82 million.
Despite the challenges, the state's upcoming budget is expected to be significantly more difficult than in the last several years. The state government remains committed to maintaining essential services and addressing the revenue shortfall in a responsible manner.
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