Consensus Forecasting Group increases state general fund revenue estimates
A group of economists and professors believes Kentucky’s state budget revenue for both the current and upcoming fiscal years will be higher than originally estimated. The Consensus Forecasting Group (CFG), met in December to revise the official general fund revenue estimates for FY 2023, which ends June 30, 2023, to $15.2 billion. That’s $1.4 billion more than CFG’s previous estimate adopted in December 2021. For FY 2024, the group’s estimate was amended to $15.46 billion, up $1.3 billion.
The CFG is a statutorily required group of citizens with economic expertise that operates independent of the state legislature. The General Assembly uses estimates provided by this group to craft and amend, when necessary, Kentucky’s biennial budget.
The revised estimates take into consideration the tax reform package passed in HB 8 during the 2022 Regular Session that took effect on January 1, 2023. The primary tax changes include the individual income tax decreasing from 5.0% to 4.5% and the sales tax expanding to 35 new services. These tax changes are expected to have a -$257.7 million impact on the general fund in FY 2023.
Despite the decrease in revenue expected from the individual income tax rate change, CFG increased the individual income tax revenue estimate due to strong growth outweighing the effect of the tax change. CFG increased the revenue estimate for every major tax category except for the cigarette tax in FY 2023. The largest increases were to the individual income tax (+$491.5 million) and the sales and use tax (+$406.2 million).
CFG’s forecast also increased the revenue estimates for almost every tax category in FY 2024, with the only decreases being the cigarette tax and coal severance. The revenue estimate for coal severance decreased from $75.2 million to $58.2 million due to the forecast including lower energy prices.
The forecast did not include in the FY 2024 estimate a second individual income tax rate decrease from 4.5% to 4.0% that would go into effect with approval of the General Assembly on January 1, 2024 if the state hits the revenue triggers set in place in HB 8.
The increased revenue estimates follow historic growth in the state’s general fund. In FY 2022, general fund revenue increased 14.6% compared to FY2021. CFG predicts that annual growth will continue, but at a more modest rate: 3.4% for FY 2023 and 1.7% for FY 2024.
To see the full report of the revised general fund estimates, click here.