Kentucky politicians of both parties patting themselves on the back for state surplus

January 9, 2023 5:30 am

The Kentucky Capitol on Jan. 4, 2023. (Kentucky Lantern photo by Arden Barnes)

FRANKFORT — I’ll say this for the pleasant delusion that has settled over the Capitol like Kentucky River fog: It’s bipartisan. 

Politicians on both sides of the aisle appear convinced that their virtuous policies and economic acumen account for state government’s record-high revenue surplus.

No one gives credit where credit is due — to the novel coronavirus and the massive infusion of pandemic relief dollars. 

Democratic Gov. Andy Beshear credits his administration’s dealmaking and job recruitment for securing “the best two-year period in state history for economic growth.” 

Republicans insist their pro-business, anti-labor laws set the stage for that growth. “I think if the sun rose today, he was trying to take credit for it,” Senate President Robert Stivers said of Beshear’s State of the Commonwealth speech last week. Republicans also tout their supermajority’s continuing shift to a taxation system that relies more on regressive sales taxes, a move that is expected to take another step this session toward eventually ending Kentucky’s income tax altogether.

Not so much as a nod from either camp to the massive pandemic spending by the federal government that brought us this unusual moment.

I like to think the Bluegrass State is unique as much as the next Kentuckian. But when it comes to our bulging $2.7 billion rainy day fund, sorry, it’s not even slightly unusual. 

States across the nation are posting record amounts of unspent cash and returning part of it to taxpayers through one-time rebates, or, as in Kentucky, permanent tax cuts.

States ended fiscal 2022 with $343 billion on hand, according to the National Association of State Budget Officers, which explains that “total balances have seen tremendous growth recently, roughly tripling in size over the past two years after revenues far exceeded enacted budget forecasts in fiscal 2021 and fiscal 2022.”

How did this happen? Presidents and lawmakers from both parties reasonably feared that the worst pandemic in a century would force widespread layoffs and collapse the economy, so to prevent that they eagerly pumped federal dollars into personal bank accounts and state and local governments. 

It worked.  The economy rebounded from its initial slump in 2020, has been adding jobs and wage increases, while also experiencing inflation, all of which pushed up collections of sales and income taxes. Even the higher interest rates imposed to curb inflation are enriching state coffers by yielding higher returns on state investments.

Here’s the thing: It’s temporary. 

Covid relief payments have ended. Federal pandemic assistance to state and local governments has ended or is winding down.

No one knows what’s coming. Some economists predict a recession. If that happens, Kentucky’s revenues would plunge, admittedly, a more familiar sensation in a state that suffered a decade of budget cutting.

Yet job growth has remained robust, though at a slower pace in December than earlier months. Amazon and other tech companies are laying off workers and the stock market is in a funk, though some economists say investors are perhaps misreading the signs and the economy could be headed for a “K-shaped soft landing.”

I beg you, dear reader, do not ask me what that means. My eyes are glazing over from reading all the conflicting economic analyses. So I will return to something I know: politicians and their knack for patting themselves on the back.

If Kentucky pols of both parties want to congratulate themselves in years to come, they’d do well to shake off the delusion that most of this surplus is anything but a fortunate fluke that will not be recurring in future state budgets.

It’s human and political nature to go for more immediate gratification, I guess. The House advanced a bill cutting the income tax, to the benefit of higher earners, for the second straight year at a cumulative cost to the state of a whopping $1.2 billion. Beshear, seeking re-election, pushed for 5% teacher raises and universal pre-school, which the Republican majority will not give him.  

As I wrote in this space last week, investing in affordable housing, especially on an emergency basis in flood-stricken Eastern Kentucky, seems the ideal use for so much one-time money. I detected not a flicker of interest in that idea from lawmakers or governor in the legislature’s first week. (I hope I’m wrong about that.)

Creating an affordable housing trust fund, as a coalition of housing nonprofits has proposed, would give Kentuckians, if only indirectly, at least one lasting good from the pandemic’s miseries.

Kentucky’s unemployment rate is 4%, a bit higher than the national rate, but as always unemployment is much higher in some Kentucky locales where recession is the norm. I fear those places and their people will be be forgotten in the temporary glow of state budget plenty. 


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Jamie Lucke
Jamie Lucke

Jamie Lucke has more than 40 years of experience as a journalist. Her editorials for the Lexington Herald-Leader won Walker Stone, Sigma Delta Chi and Green Eyeshade awards. She is a graduate of the University of Kentucky.