Kentucky state budget and finances

In Kentucky, as in other states, lawmakers and public officials are elected in large part to manage the state's complex finances. This includes generating revenues (money coming into the state from various sources) and approving expenditures (the money spent on governmental functions and servicing state debt). State budgets are complicated and fluid, as they depend on anticipated revenues and planned expenditures, which may change over the course of a fiscal year. All citizens are affected by their state's budget and financial situation; if revenues do not keep pace with expenditures, states generally have to raise taxes, cut services, borrow money, or a combination of the three. State budget decisions are also influenced by policy decisions at the national level, such as the Affordable Care Act or energy and environmental regulations, and issues at the local level, such as crime and the quality of education.

HIGHLIGHTS

Between fiscal years 2014 and 2015, total government spending in Kentucky increased by approximately $2.4 billion—from $28.9 billion in fiscal year 2014 to an estimated $21.3 billion in 2015. This represents a 7.66-percent increase.[1][2][3]

In Kentucky in fiscal year 2014, 48.2 percent of total tax revenues came from sales taxes and gross receipts. Income taxes accounted for 39.8 percent of total tax collections.

Education accounted for 41.3 percent of state expenditures in fiscal year 2015, while 24.0 percent went to Medicaid.

The Kentucky state budget and financial data presented here come from different years because the states and the federal government report and publish the information at different times.

Definitions

The following terms are used to describe a state's finances:

• Revenues come mainly from tax collections, licensing fees, federal aid, and returns on investments.
• Expenditures generally include spending on government salaries, infrastructure, education, public pensions, public assistance, corrections, Medicaid, and transportation.
• State debt refers to the money borrowed to make up for a deficit when revenues do not cover spending.
• The state credit rating is the grade given by a credit rating agency based on the general financial health of the state's government and economy.
• State funds include general and other state-based funds. A general fund is "the predominant fund for financing a state's operations." Other state funds are "restricted by law for particular governmental functions or activities."^[4]
• Federal funds are "funds received directly from the federal government."^[4]
• Total spending is calculated by adding together the totals for state and federal funds used for expenditures.

Revenues

2014 revenues

See also: State government tax collections by source

The table below breaks down state government tax collections by source in 2014 (comparable figures from surrounding states are also provided to give additional context). Figures for all columns except "2013 population" and "Per capita collections" are rendered in thousands of dollars (for example, $2,448 translates to $2,448,000). Figures in the columns labeled "2013 population" and "Per capita collections" have not been abbreviated.^[5]

Compared to neighboring states, Kentucky had the second highest state tax collections per capita, at $2,516.

State tax collections by source ($ in thousands), 2014
State	Property taxes	Sales and gross receipts	Licenses	Income taxes	Other taxes	Total	2013 population	Per capita collections
Kentucky	$562,370	$5,354,124	$472,225	$4,423,722	$291,104	$11,103,545	4,412,617	$2,516
Tennessee	N/A	$8,758,085	$1,335,392	$1,416,190	$296,662	$11,806,329	6,547,779	$1,803
Virginia	$35,561	$6,063,182	$795,515	$11,618,200	$436,814	$18,949,272	8,328,098	$2,275
West Virginia	$0	$2,560,993	$152,754	$1,973,974	$692,216	$5,379,937	1,848,751	$2,910
United States	$14,232,835	$411,414,175	$51,120,024	$357,104,785	$31,880,270	$865,752,089	318,907,401	$2,715
Source: U.S. Census Bureau, "2014 annual survey of state government tax collections by category," accessed April 4, 2016

The table below lists 2014 tax collections by source as percentages of total collections. About 48.2 percent of Kentucky's total state tax collections came from sales taxes and gross receipts.^[5]

State tax collections by source (as percentages), 2014
State	Property taxes	Sales and gross receipts	Licenses	Income taxes	Other taxes
Kentucky	5.1%	48.2%	4.3%	39.8%	2.6%
Tennessee	N/A	74.2%	11.3%	12.0%	2.5%
Virginia	0.2%	32.0%	4.2%	61.3%	2.3%
West Virginia	0.0%	47.6%	2.8%	36.7%	12.9%
Source: U.S. Census Bureau, "2014 annual survey of state government tax collections by category," accessed April 4, 2016

Federal aid to the state budget

See also: Federal aid to state budgets

State governments receive aid from the federal government to fund a variety of joint programs, mainly in the form of grants for such things as Medicaid, education, and transportation. In 2013 federal aid to the states accounted for roughly 30 percent of all state general revenues. Federal aid varies considerably from state to state. For example, Mississippi received approximately $7.5 billion in federal aid in 2013, accounting for about 43 percent of the state's general revenues, the highest percentage of all of the states. By contrast, North Dakota received about $1.5 billion in federal aid in 2013, or just 19 percent of the state's general revenues, the lowest percentage in the nation.^[6]

The table below notes what share of Kentucky’s general revenues came from the federal government in 2013. That year, Kentucky received approximately $8.0 billion in federal aid, 35.1 percent of the state's general revenues. Taking into consideration the state's 2013 population, this came out to about $1,831 in federal aid per capita. Figures from surrounding states are provided for additional context.^[7]

Federal aid to state budgets, 2013
State	Total federal aid ($ in thousands)	Federal aid as a % of general revenues	Ranking (by % of general revenues)	Est. 2013 population	Aid per capita
Kentucky	$8,047,093	35.1%	12	4,395,295	$1,831
Tennessee	$10,819,977	39.5%	3	6,495,978	$1,666
Virginia	$9,412,343	22.9%	47	8,260,405	$1,139
West Virginia	$4,230,663	34.1%	16	1,854,304	$2,282
Sources: United States Census Bureau, "State Government Finances: 2013," accessed April 4, 2016 United States Census Bureau, "State totals: Vintage 2013," accessed April 8, 2016 Note: Per-capita figures were generated by Ballotpedia by dividing total federal aid for the state by the estimated population of that state in 2013.

Spending

Estimated 2015 expenditures

See also: Total state expenditures

The table below breaks down estimated spending totals for fiscal year 2015 (comparable figures from surrounding states are included to provide additional context). Figures for all columns except "Population” and “Per capita spending" are rendered in millions of dollars (for example, $2,448 translates to $2,448,000,000). Figures in the columns labeled "Population” and “Per capita spending" have not been abbreviated.^[2]

Kentucky's total estimated government spending in fiscal year 2015 was $31.3 billion, which was the second lowest amount when compared to surrounding states.

Total estimated state spending, FY 2015 ($ in millions)
State	State funds	Federal funds	Total spending	Population	Per capita spending
Kentucky	$19,512	$11,830	$31,342	4,425,092	$7,082.79
Tennessee	$18,806	$13,156	$31,962	6,600,299	$4,842.51
Virginia	$36,257	$9,706	$45,963	8,382,993	$5,482.89
West Virginia	$19,044	$4,372	$23,416	1,844,128	$12,697.60
Per-capita figures are calculated by taking the state's total spending and dividing by the number of state residents according to United States Census Bureau estimates.[8] Source: National Association of State Budget Officers, "Examining fiscal 2013-2015 state spending," accessed April 4, 2016

Spending by function

See also: State spending by function as a percent of total expenditures

State spending in Kentucky can be further broken down by function (elementary and secondary education, public assistance, etc.). Fiscal year 2014 information is included in the table below (information from neighboring states is provided for additional context). Figures are rendered as percentages, indicating the share of the total budget spent per category.^[2]

In fiscal year 2014, Medicaid accounted for 24 percent of Kentucky's total expenditures.

State spending by function as a percent of total expenditures, FY 2014
State	K-12 education	Higher education	Public assistance	Medicaid	Corrections	Transportation	Other
Kentucky	17.4%	23.9%	0.7%	24.0%	2.1%	9.5%	22.4%
Tennessee	18.3%	14.2%	0.3%	30.6%	3.1%	5.7%	27.8%
Virginia	15.1%	15.2%	0.3%	17.2%	2.7%	12.0%	37.4%
West Virginia	9.8%	12.1%	0.5%	14.8%	1.0%	5.4%	56.4%
Source: National Association of State Budget Officers Note: "Other" expenditures include "Children's Health Insurance Program (CHIP), institutional and community care for the mentally ill and developmentally disabled, public health programs, employer contributions to pensions and health benefits, economic development, environmental projects, state police, parks and recreation, housing and general aid to local governments."[2]

Spending trends

Between 2010 and 2014, the share of the Kentucky state budget spent on Medicaid increased from 21.9 percent in 2010 to 24.0 percent in 2014. See the table below for further details (figures are rendered as percentages, indicating the share of the total budget spent per category).^[2][9][10]

Spending by function from 2010 to 2014 (as percentages)
Year	K-12 education	Higher education	Public assistance	Medicaid	Corrections	Transportation	Other
2014	17.4%	23.9%	0.7%	24.0%	2.1%	9.5%	22.4%
2013	19.6%	26.7%	0.9%	21.9%	2.4%	9.8%	18.8%
2012	19.8%	25.7%	0.9%	22.5%	2.4%	8.9%	19.8%
2011	19.7%	23.8%	0.9%	22.8%	2.3%	7.9%	22.6%
2010	19.4%	22.4%	0.8%	21.9%	2.2%	8.0%	25.2%
Source: National Association of State Budget Officers Note: "Other" expenditures include "Children's Health Insurance Program (CHIP), institutional and community care for the mentally ill and developmentally disabled, public health programs, employer contributions to pensions and health benefits, economic development, environmental projects, state police, parks and recreation, housing and general aid to local governments."[2]

Current fiscal year budget

See also: Historical Kentucky budget and finance information

Fiscal years 2015 and 2016

See budget bill: HB 235

Governor Steve Beshear announced his budget proposal for the 2015-2016 biennium on January 21, 2014. Under the governor's proposal, total spending for fiscal year 2015 would have equaled approximately $20.3 billion.^[2]

On April 11, 2014, Beshear signed into law the biennial budget for fiscal years 2015 and 2016. The enacted budget totaled $20.3 billion. As enacted, the budget included pay raises for state employees and teachers. It also increased K-12 education funding by $189 million over 2013-2014 levels. The budget as enacted also fully funded the state's pension contributions but several agencies will have their budgets cut by 2.5 percent to 5 percent.^[2]

State debt

See also: State debt

According to a January 2014 report by the nonprofit organization State Budget Solutions, Kentucky had a state debt of approximately $86.2 billion. Its state debt per capita was $19,689. In this report for fiscal year 2012, state debt was calculated based on four components: "market-valued unfunded public pension liabilities, outstanding government debt, unfunded other post employment benefit (OPEB) liabilities, and outstanding unemployment trust fund loans." The report revealed that altogether state governments faced a combined $5.1 trillion in debt, which amounted to $16,178 per capita in the nation.^[11][12]

Total 2012 state debt
State	Total state debt	State debt per capita	Per capita debt ranking
Kentucky	$86,245,730,000	$19,689	11
Tennessee	$41,049,738,000	$6,358	50
Virginia	$91,339,102,000	$11,158	41
West Virginia	$24,972,461,000	$13,459	29
Sources: State Budget Solutions, "State Budget Solutions' Fourth Annual State Debt Report," January 8, 2014

Taxpayer burden

TIA Methodology: To figure a state’s taxpayer burden or surplus, TIA looked at a state’s total reported assets minus capital assets and assets restricted by law (buildings, roads, land, etc.) to calculate “available assets,” which were then compared to the amount of money the state owes in bills, including retirement obligations such as pension plans and health care benefits for retirees. If the difference between available assets and total bills was positive, TIA called this a surplus; if it was negative, this was a burden. This amount was then divided by the number of individual tax returns with a positive tax liability, thus expressing the total state surplus or burden on a per-taxpayer basis.

According to a report released in September 2015 by the nonprofit Truth in Accounting (TIA), Kentucky ranked 4th worst in the country in “taxpayer burden.” Rather than using per capita state debt, TIA ranked states based on what it called a “taxpayer burden,” a term that reflects “the amount each taxpayer would have to send to their state’s treasury in order for the state to be debt-free.” On the other hand, states that had sufficient resources to pay their bills were said to have a “taxpayer surplus,” which represents the amount that each taxpayer would receive if the state were to disburse its excess funds.

Based on analysis of Kentucky’s Comprehensive Annual Financial Report from June 30, 2014 and actuarial reports for the state’s retirement plans, TIA concluded that $36 billion in promised retirement benefits were unfunded, but only $6.6 billion of these liabilities were reported on Kentucky’s balance sheet. With all of the unfunded retirement benefits included in the total debt, the state had a shortfall of $40.1 billion, or a taxpayer burden of $32,600.^[13]

Public pensions

See also: Kentucky public pensions and Kentucky public employee salaries

Between fiscal years 2008 and 2012, the funded ratio of Kentucky's state-administered pension plans decreased from 63.8 percent to 46.8 percent. The state paid 65 percent of its annual required contribution, and for fiscal year 2012 the pension system's unfunded accrued liability totaled $21.3 billion. This amounted to $4,983 in unfunded liabilities per capita.^[14][15]

Credit ratings

See also: State credit ratings

Credit rating agencies, such as Standard and Poor's, assign grades to states that take into account a state's ability to pay debts and the general health of the state's economy. Generally speaking, a higher credit rating indicates lower interest costs on the general obligation bonds states sometimes sell to investors in order to finance large-scale undertakings (e.g., road construction and other public works projects). This in turn results in lower interest costs, thereby lowering the cost to taxpayers.^[16][17]

The table below lists the Standard and Poor's credit ratings for Kentucky and surrounding states from 2004 to 2014. Standard and Poor's grades range from AAA, the highest available, to BBB, the lowest.^[18]

State credit ratings, 2004 to 2014
State	2014	2013	2012	2011	2010	2009	2008	2007	2006	2005	2004
Kentucky	AA-	AA-	AA-	AA-	AA-	AA-	AA-	AA-	AA-	AA-	AA-
Tennessee	AA+	AA+	AA+	AA+	AA+	AA+	AA+	AA+	AA+	AA	AA
Virginia	AAA	AAA	AAA	AAA	AAA	AAA	AAA	AAA	AAA	AAA	AAA
West Virginia	AA	AA	AA	AA	AA	AA	AA-	AA-	AA-	AA-	AA-
Source: Stateline: The Daily News Service of The Pew Charitable Trusts, "Infographic: S&P State Credit Ratings, 2001-2014," June 9, 2014

Economic indicators

See also: Economic indicators by state

Broadly defined, a healthy economy is typically one that has a "stable and strong rate of economic growth" (gross state product, in this case) and low unemployment, among many other factors. The economic health of a state can significantly affect its healthcare costs, insurance coverage, access to care, and citizens' physical and mental health. For instance, during economic downturns, employers may reduce insurance coverage for employees, while those who are laid off may lose coverage altogether. Individuals also tend to spend less on non-urgent care or postpone visits to the doctor when times are hard. These changes in turn may affect the decisions made by policymakers as they react to shifts in the industry. Additionally, a person's socioeconomic status has profound effects on their access to care and the quality of care received.^[19][20][21]

In 2013, Kentucky had the highest percentage of residents that earned incomes below the federal poverty level among its neighboring states. Between 2011 and 2013, the state had a median annual household income of $42,260, which was lower than any of its neighboring states. The state's September 2014 unemployment rate was higher than the national rate at 6.7 percent.^{[22][23][24][25]}

Note: Gross state product (GSP) on its own is not necessarily an indicator of economic health; GSP may also be influenced by state population size. Many factors must be looked at together to assess state economic health.

Various economic indicators by state
State	Distribution of population by FPL* (2013)				Median annual income (2011-2013)	Unemployment rate		Total GSP (2013)†
	Under 100%	100-199%	200-399%	400%+		Sept. 2013	Sept. 2014
Kentucky	20%	22%	30%	28%	$42,260	8.3%	6.7%	$183,373
Tennessee	18%	20%	34%	28%	$42,785	8.2%	7.3%	$287,633
Virginia	11%	15%	26%	48%	$65,635	5.5%	5.5%	$452,585
West Virginia	18%	22%	33%	27%	$43,361	6.4%	6.6%	$73,970
United States	15%	19%	30%	36%	$52,047	7.2%	5.9%	$16,701,415
* Federal Poverty Level. "The U.S. Census Bureau's poverty threshold for a family with two adults and one child was $18,751 in 2013. This is the official measurement of poverty used by the Federal Government." † Median annual household income, 2011-2013. ‡ In millions of current dollars. "Gross State Product is a measurement of a state's output; it is the sum of value added from all industries in the state." Source: The Henry J. Kaiser Family Foundation, "State Health Facts"

Budget process

State documents and agenciesBelow are links to official Kentucky budget and financial documents. The first is the state's Comprehensive Annual Financial Report (CAFR). A CAFR is a detailed presentation of a government entity's financial condition. This includes fiscal activities and balances for a fiscal year. The second link is to the state's relevant budget agency or office. Kentucky CAFR Kentucky budget agency

The state operates on a biennial budget cycle. The sequence of key events in the budget process is as follows:^[26][27]

1. Budget instructions are sent to state agencies in July of the year preceding the start of the biennium.
2. State agencies submit their budget requests in October.
3. Agency hearings are held in November and December.
4. The governor submits his or her proposed budget to the legislature on the 15th legislative day (this deadline is moved up to the 10th legislative day for governors serving a second term).
5. The state legislature adopts a budget in April. The biennium begins July 1.

Kentucky is one of 44 states in which the governor has line item veto authority.^[27]

The governor is legally required to submit a balanced budget proposal. Likewise, the legislature is required to adopt a balanced budget.^[27]

Agencies, offices, and committees

The following standing committees in the Kentucky General Assembly deal with budget and finance matters:^[28][29][30]

1. Appropriations and Revenue Committee, Kentucky General Assembly
2. Appropriations and Revenue Committee, Kentucky House of Representatives
3. Appropriations and Revenue Committee, Kentucky State Senate

The Kentucky Auditor of Public Accounts is responsible for auditing all accounts and financial transactions of all state government spending agencies. The auditor is elected every four years in partisan elections.^[31]

Transparency

See also: "Following the Money" report, 2015

The U.S. Public Interest Research Group, a consumer-focused nonprofit organization based in Washington, D.C., released its annual report on state transparency websites in March 2015. The report, entitled "Following the Money," measured how transparent and accountable state websites are with regard to state government spending.^[32] According to the report, Kentucky received a grade of B and a numerical score of 86, indicating that Kentucky was "Advancing" in terms of transparency regarding state spending.^[32]

Budget and finance ballot measures

Voting on state and local government budgets, spending, and finance
Policy
Budget policy
Ballot measures
By state
By year
Not on ballot
Local City budgets County budgets Spending limits School budgets

See also: Spending and finance on the ballot and List of Kentucky ballot measures

Ballotpedia has tracked the following ballot measures relating to state and local budget and financial matters in Kentucky.

1. Kentucky Appropriated School Funds Referendum (1949)
2. Kentucky Balanced Budget Requirement, Amendment 1 (1994)
3. Kentucky Distribution and Use of School Fund, Referendum (1953)
4. Kentucky Equalization Fund Referendum (1941)

Budget and finance legislation

The following is a list of recent budget and finance bills that have been introduced in or passed by the Kentucky state legislature. To learn more about each of these bills, click the bill title. This information is provided by BillTrack50 and LegiScan.

Note: Due to the nature of the sorting process used to generate this list, some results may not be relevant to the topic. If no bills are displayed below, no legislation pertaining to this topic has been introduced in the legislature recently.

Recent news

The link below is to the most recent stories in a Google news search for the terms Kentucky budget. These results are automatically generated from Google. Ballotpedia does not curate or endorse these articles; they are included to provide readers with the most recent news articles on the subject. Click here to learn more about this section.

Contact information

Office of State Budget Director
702 Capital Avenue, 284 Capitol Annex Building
Frankfort, Kentucky 40601
Telephone: 502-564-7300

See also

• Historical Kentucky budget and finance information
• Tax policy in Kentucky
• Kentucky government sector lobbying
• Kentucky public pensions
• Governor of Kentucky
• Kentucky State Senate
• Kentucky House of Representatives
• Kentucky State Legislature

External links

• Kentucky Budget Process on FreedomKentucky.org
• Kentucky's Open Door
• Bluegrass Institute for Public Policy Solutions
• Check It Out Kentucky! (Secretary of State's Office)
• V.I.E.W. (Vendor Income and Expense Watch) (Treasury Office)
• Kentucky Secretary of State
• Office of State Budget Director

Additional reading

• U.S. PIRG, "Report: Transparent & Accountable Budgets," April 8, 2014
• The New York Times, "Battles loom in many states over what to do with budget surpluses," February 3, 2014
• Center on Budget and Policy Priorities, "Policy Basics: The ABCs of State Budgets," February 7, 2013
• Gov. Steve Beshear, "2010 State of the Commonwealth Address," January 6, 2010
• Stateline.org, "Kentucky State of the Commonwealth Address 2009," February 4, 2009

Footnotes

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	v • e State of Kentucky Frankfort (capital)
Ballot measures	List of Kentucky ballot measures | Local measures | School bond issues | Ballot measure laws | History of I&R | History of direct democracy | Campaign Finance Requirements |
Government	Kentucky State Constitution | House of Representatives | Senate | Legislative Research Commission |
State executive officers	Governor | Lieutenant Governor | Attorney General | Secretary of State | State Treasurer | Auditor of Public Accounts | Commissioner of Education | Commissioner of Insurance | Commissioner of Agriculture | Commissioner of Natural Resources | Secretary of Labor Cabinet | Chairman of Public Services |
School boards	Kentucky Department of Education | Kentucky school districts |
Judiciary	Kentucky Supreme Court | Court of Appeals | Circuit Courts | District Courts | Family Courts | Judicial selection in Kentucky |
Transparency Topics	Open Records Act | Transparency Legislation | Transparency Advocates | Transparency blogs | State budget | Taxpayer-funded lobbying associations | Freedom Kentucky |
Divisions	State | List of Counties | List of Cities | List of School Districts | Evaluation of county websites | Evaluation of city websites | Evaluation of school district websites |

This article is curated by the Public Policy Desk: Jerrick Adams • Sarah Groat • Taylor Kempema • Adam Vaughn Contact the desk