What would you do if you had billions of dollars to help meet the needs of your fellow Kentuckians? Would you use the money to address the teacher and bus driver shortages, build affordable housing, or provide essential medical care to those who need it most? Or would you sit on an excessively large pile of cash, letting needs go unmet while the stockpile grows?
So far, the General Assembly has chosen the latter, allowing the state’s Budget Reserve Trust Fund, which is more commonly known as the rainy day fund, to grow to an astounding $3.7 billion. That total will reach $5 billion by next summer, and could rise to nearly $8 billion by the end of the next two year budget period unless lawmakers make a different choice in 2024. Instead of continuing to hoard billions of dollars that could go toward improving people’s lives, they could use available recurring and one-time money to pass a budget that truly delivers for the people of Kentucky.
Kentucky, like nearly every other state, has seen strong tax revenue growth the last few years thanks to federal policies that stimulated a strong economic recovery. Unemployment is lower now than it’s been on record.
That gives us the resources to do more. The rainy day fund has never been this large and is now much bigger than needed to protect against future downturns. Most experts say a rainy day fund with 15% of annual state revenues is a sufficient safeguard. If the legislature passes another continuation budget that leaves many needs unmet, billions more will be added over the next two years and the fund’s balance will reach nearly 50% of annual receipts.
That means the money is there to begin correcting years of disinvestment and start to build a better Kentucky.
Kentucky has still not restored many public services depleted by years of budget cuts after the Great Recession. Lack of funding leads to problems Kentuckians face every day: unaffordable rents, difficult to access drug treatment, children left without caregivers, and grandparents ailing in uninspected nursing homes. Staggering cuts to higher education have meant more precarious and poorly paid adjunct teachers, and rising tuition that’s saddled hundreds of thousands of Kentuckians with debt.
The failure to adequately invest in public schools led to an ominous milestone this year as school funding inequity surpassed the levels that were declared unconstitutional in the late 1980s. The teacher shortage is worsening, and families across the commonwealth have felt the effects of the legislature's refusal to fully fund public school transportation, with bus drivers exiting for much higher pay elsewhere. What good are record revenues if we're not using them to meet basic needs?
The money is there to do much more for the victims of natural disasters in eastern and western Kentucky and help make communities more resilient before the next catastrophic storm hits. Meanwhile, the child care industry would have collapsed during the pandemic were it not for federal funding. But with that money expiring, the state must step up to ensure kids can keep learning and parents can keep working.
And the money is there to make a downpayment on bigger ambitions. We could begin building a universal pre-K program and to initiate a child tax credit program that could eventually slash child poverty. This is how we take advantage of this moment and start a path to transformational change.
With so many needs and money on the table, it’s logical to wonder why some lawmakers have said they aim to pass a budget that largely continues current inadequate spending levels. The explanation likely lies in House Bill 8, passed in 2022, which established a framework for cutting Kentucky’s income tax, our single largest source of state revenue.
The bill requires the state to build up the rainy day fund and keep budgets meager in order to reduce and eventually eliminate the income tax. But doing that would wipe out nearly half of the state’s budget while sending tens of thousands of dollars in tax breaks every year to millionaires.
If we want a Kentucky where every child has access to a great public school, our neighbors have a safe place to call home, and every Kentuckian, of every race, in every part of the state, has the freedom to live with dignity, the choice in 2024 is clear — our lawmakers must use money that’s already there to pass a budget that delivers for the people.
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Written by Adam Raynond, communications director at the Kentucky Center for Economic Policy.
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