Governor Andy Beshear warned of a state revenue shortfall for this fiscal year during his press conference on Sept. 4.
A revenue shortfall occurs when the state collects less money than originally anticipated.
In the press conference, Beshear accredits the shortfall to the uncertainty caused by President Donald Trump’s tariffs and the cut to the income tax.
“Federal tariffs, and the uncertainty surrounding these tariffs, are directly impacting our spending and our economic activity,” said Beshear. “Second, the cut to the income tax rate is going to cost the Commonwealth $359 million for this fiscal year, representing one-half the annual value.”
The current revenues for the fiscal year will last from July 1, 2025, to June 30, 2026.
Last spring, the House introduced a bill that could change the way the General Assembly cuts income taxes. According to the Herald Leader, under the bill, the individual income tax could drop in increments of one-tenth of a percentage point. Therefore, it would change the current income tax from 4% to 3.5%. While the bill was intended to help with consumer spending, Beshear warns that it is now causing problems.
Beshear said that the state budget director, John Hicks, requested to meet with the Consensus Forecasting Group on Sept. 16 to provide a new forecast and amend the current year’s revenue estimates.
The Consensus Forecasting Group is a statutory committee with 10 economists who develop official revenue forecasts for the Kentucky General Assembly. Beshear said that the group will specifically meet to make revisions to the General Fund and the Road Fund. Beshear said that, through this meeting, they will indicate whether or not Kentucky will have a shortfall, and if they do, they will take steps to address it.
“Let me say, I expect a shortfall, but I also expect that we can effectively manage it. There will be more to come when we get the response from the Consensus Forecasting Group, and then we will announce any steps that we may need to take. States, unlike the federal government, must balance their budget, and we are already making plans on how we might do that, if the Consensus Forecasting Group confirms the expected shortfall,” the Governor explained in the press conference on Sept. 4.
Despite concerns, Beshear’s announcement has caused some confusion for other government leaders. According to the Murray Ledger Times, State Rep. Mary Beth Imes had not been aware of the potential shortfall.
In August, John Hicks told lawmakers information regarding the budget and released the tax receipts for both the General Fund Revenue and the Road Fund Revenue. During this time, Hicks did not indicate issues within the budget or that there could be a potential shortfall.
In addition, House Speaker David Osborne was also perplexed by the Governor’s remark.
“The Consensus Forecasting Group is already scheduled to deliver an updated economic outlook… If this is genuinely a concern, why not bring it to us earlier — particularly since the governor’s budget director testified before lawmakers just two weeks ago,” Osborne said in a statement he released.
Although the shortfall may cause concerns for Kentuckians, State Senator Chris McDaniel said that both the income tax cut was something lawmakers took into account when creating the budget, and, even if there was a shortfall, Kentucky is well positioned and prepared to deal with it.
Photo courtesy of Governor.Ky
