Report: Surpluses present opportunity to both reinvest in Kentucky AND build Rainy Day Fund

Resources allow Kentucky to begin reversing over a decade of harmful budget cuts

Guest Author
Guest Author

Via a press release from the Kentucky Center for Economic Policy

Thanks to federal pandemic aid that helped keep Kentucky residents and businesses afloat, the state ended 2021 with a substantial revenue surplus, and currently expects another large surplus in the summer of 2022. As described in a new report by the Kentucky Center for Economic Policy, the surpluses offer a tremendous opportunity to help Kentucky families who continue to struggle in the pandemic, begin reversing years of harmful budget cuts, and create the conditions for a strong and sustained economic recovery that benefits everyone.

Current projections are for the surpluses to increase the balance in the state’s Budget Reserve Trust Fund (BRTF) — also known as the rainy day fund — in July 2022 to an unprecedented $3.2 billion, or 25.9% of the state’s General Fund budget. In contrast, the fund has not exceeded 3.7% of the budget any time over the last few decades since it was established.

As described in the report, a responsible approach to the surplus would free up well over $2 billion over the next several years that can provide relief to Kentuckians still struggling and allow critical reinvestments in schools, health, human services and other vital needs depleted by over a decade of budget cuts.

“Some Kentuckians are still hurting from the pandemic, and surplus dollars can be used to provide aid to those in need,” said Jason Bailey, Kentucky Center for Economic Policy executive director and author of the report. “And resources are expected to be available to allow Kentucky to begin restoring vital services — from child welfare to mental health to education — reduced by 19 rounds of budget cuts since 2008. That includes better ensuring these critical services offer the compensation needed to attract and retain workers and the modern technology needed to function.”

At the same time, the surplus includes the resources needed to begin rebuilding the state’s Budget Reserve Trust Fund, also known as the rainy day fund, to make it a more reliable fiscal tool going forward. The report contains recommendations to set the BRTF at 5% of the state budget in the short-term and make changes to statute aimed at building it to 15% of the budget by the next time it is needed.

“Kentucky has done a poor job preparing for recessions in the past by not building an adequate rainy day fund, in part because of rules that need to be updated,” said Bailey. “The good news is the size of the expected surpluses allows us both to begin addressing Kentucky’s immediate budgetary needs and get a head start on building a stronger rainy day fund for the future.”

The report is available here.

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