Gov. Andy Beshear says Kentucky is facing a projected revenue shortfall this fiscal year.
He attributes the deficit to federal tariffs that he says are impacting spending and overall economic activity. In addition, a state income tax reduction is cutting $359 million from revenues this year.
Beshear has asked ten economists who make up the consensus forecasting group to meet Sept. 16 to revise budget estimates for the current fiscal year that ends June 30, 2026.
“This will tell us if we have a shortfall, and if we do, we will immediately start taking steps to address it," Beshear said Thursday. "Let me say, I expect a shortfall, but I also expect we can and will effectively manage it.”
Beshear says the next budget will be even more lean as the state faces $66 million in additional costs to administer the Supplemental Nutrition Assistance Program (SNAP) that the federal government is no longer providing. The new cost shift is the result of the Republican-backed federal budget signed into law in July and dubbed by President Donald Trump as the "Big Beautiful Bill."
Beshear says states will also be have to fill gaps resulting from federal funding cuts to the National Institutes of Health (NIH) for research institutions like the University of Kentucky and University of Louisville.
Projections of a revenue shortfall this fiscal year come as Kentucky misses targets for another cut to the income tax rate, which some fiscal watchers note is a good thing.
"Kentucky began this tax-cutting experiment at a unique moment in history. Federal COVID stimulus spurred huge increases in state tax revenue while pandemic-induced inflation made those increases seem bigger than they actually were. That period, where there seemed to be ‘extra money,’ has now ended," said Jason Bailey, executive director, Kentucky Center for Economic Policy. "Making huge permanent tax cuts based on temporary conditions was always a losing bet."
In 2022, the Republican-led General Assembly cut the income tax rate from from 5% to 4.5% and set up a process for gradually lowering the rate until the income tax is eliminated.
The left-leaning Kentucky Center for Economic Policy has railed against the plan as being skewed to the wealthy and targeting the state's largest revenue source.
