Major party leaders each claim responsibility for good times in Kentucky

(The Center Square) – One day after Kentucky Gov. Andy Beshear took credit for the state’s $945.4 million budget surplus after the 2021-22 fiscal year, a leading Republican state lawmaker credited GOP fiscal policies opposed by the Democratic governor for the state’s strong financial position.

House Speaker David Osborne, R-Prospect, said on Tuesday that the surplus, which comes on the heels of a $1.1 billion surplus after the 2020-21 fiscal year, did not come as a surprise to the General Assembly, where Republicans hold super majorities in both chambers.

“This is what happens when you commit to sound fiscal policies and responsible tax reforms in order to foster economic growth as we have over the past five years,” Osborne said. “While there are some, including the governor, who seem committed to spending every available taxpayer dollar, the House will continue to pass budgets aimed at meeting today’s needs while planning for the future.”

Earlier this year, the Republican-led legislature passed a tax reform bill over Beshear’s veto that will cut the state’s personal income tax from 5% to 4% starting in January. In future years, the tax rate will get cut if state finances meet certain thresholds. The goal behind the reforms is to eventually eliminate the state’s income tax and adjust the state’s sales tax.

Republican lawmakers and the Democratic governor have been at odds for most of Beshear’s tenure. Legislators were critical of his handling of the COVID-19 pandemic and its impact on businesses that dealt with social distancing and other guidelines. That led to the General Assembly passing legislation to curtail a governor’s emergency powers, a law that the state Supreme Court upheld.

With the surplus, Kentucky is expected to have a rainy day fund of about $2.7 billion. While the state’s current financial position may lead to additional talks of tax cuts or other reforms, Jason Bailey, the executive director of the Kentucky Center for Economic Policy, warned against that.

He said the state’s surplus is due to one-time funding the state received through the CARES Act and other COVID-19 relief measures, and the higher-than-expected tax receipts are a product of the current period of inflation the country is enduring.

“As those factors ease, the pace of revenue growth will likely cool. The Federal Reserve is responding to inflation by aggressively raising interest rates, which creates considerable risk of pushing the economy into another recession,” Bailey said in his analysis Monday. “If that happens, state revenue growth will tumble, and Kentucky will be scrambling for dollars to patch budget holes just as we did after the Great Recession in 2008.”

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