Kentucky Gov. Beshear’s budget plan focuses on economy, education

Kentucky Gov. Andy Beshear’s proposed $136.6 billion 2024-2026 biennium budget focuses on ways to continue the state’s economic rebound and provides substantial new funds for education and infrastructure.

The Democratic governor’s budget proposal will be debated by the Republican-dominated General Assembly when it reconvenes on Jan. 2.

Beshear’s plan, which he calls “Forward, Together,” would include what he calls a record amount of spending on education, including an 11% raise over two years for all its public school employees.

The budget provides $1.1 billion over two years to fund the raise for teachers, bus drivers, cafeteria workers and janitors and bring the average teacher starting pay to $42,191 a year, according to the National Education Association. This would raise the state ranking for average teacher salary to 25th in the United States from its current ranking of 40th, according to the NEA.

“Just imagine the local economic impact of an 11% raise to every employee of the county’s largest employer. And we have the funding to do it,” Beshear said. “These raises will not only help us recruit, but will have a major impact on our local communities.”

Beshear’s proposal also focuses on funding for infrastructure and he commended local officials for their collaboration on programs to provide water and sewer, site development and infrastructure funds to communities around the state.

The budget plan includes an additional $500 million in grants to county and local governments to provide clean water and wastewater systems to unserved communities. This is in addition to the $500 million that has already been allocated since 2021 from federal dollars approved in a bipartisan approach by the legislature.

The governor also wants $200 million over the next two years for economic development — $100 million to prepare “mega projects” and another $100 million for county and regional site development.

“We know this works. Working with lawmakers, we’ve already dedicated $100 million to this kind of site development through our successful Kentucky Product Development Initiative,” Beshear said. “To date, more than 47 counties have received funding to develop more build-ready sites, and a second round of funding is on its way.”

The proposed budget would return all of the state’s coal severance tax revenues to coal-producing counties.

It would also provide more than $75 million to the Eastern Kentucky SAFE Fund to shore up the fund and provide more resources for communities. The funding builds off the agreements made between state lawmakers and the Beshear administration to allocate funds following devastating flooding in the east and tornadoes in the west.

For the state government’s workforce, Beshear has proposed a 6% across-the-board raise effective July 1 and an additional 4% increase effective July 1, 2025. The administration said that combined this would be the largest four-year increase it was aware of and was an attempt to catch up since state workers have seen no pay hikes in 10 of the last 12 years.

The proposal would also fully fund state employees’ pensions and includes $209 million to be used over two years to pay down pension liabilities.

The governor also wants to use the $71 million set aside in the previous legislative session to improve state parks. His plan includes $184 million for projects ranging from the reconstruction of marinas and conference centers to updating electrical and water systems throughout the state parks system.

Beshear said this would help continue to fuel the growth in the state’s tourism sector, which experienced its best year on record, seeing $12.9 billion in economic impact and sustaining more than 91,600 jobs in 2022.

Kentucky’s economy has been surging post-pandemic, rapidly recovering from the negative economic impacts of COVID-19.

In 2021, the state saw record new private sector investment that helped to push its finances to an historically strong position.

An all-time record-setting revenue surplus was seen in fiscal 2021 and revenue estimates for 2022-2024 forecast $1.9 billion more in general fund revenues than budgeted in the current fiscal year, and a growth rate of 7.5%, down from a 10.9% rate of growth last year. These would be the best back-to-back years since 2005-2006, according to the budget plan.

In the first half of the fiscal year, general fund receipts have grown more than 15% with the Consensus Revenue Forecasting Group predicting growth rates for fiscal 2023 to be 2.1% and 4.2% in fiscal 2024, which is in line with historical patterns.  

The CRFG is a state mandated group comprised of people with economic expertise and which operates independently of the state legislature and governor. Legislators use these estimates to help craft a budget .

“I want every Kentuckian and lawmaker to know how important it is to pass a budget that invests in our families, so we can turn the last four years of progress into decades of prosperity,” Beshear said.

On Dec. 12, Beshear was sworn in for a second term as governor after winning re-election in November over Republican State Attorney General Daniel Cameron by a 53% to 47% margin in the GOP-dominated state.

“No longer a ‘flyover state,’ we have become a destination for global businesses. We’ve secured the best four-year period for economic growth in our history,” he said.

As of Nov. 30, Kentucky ranked 32 in the United States for debt issuance, with state and local government issuers selling $3.1 billion, down 18.7% from the $3.8 billion sold during the same period in 2022.

In June, S&P Global Ratings upgraded Kentucky’s issuer credit rating to A-plus from A; the outlook was revised to stable from positive.

S&P said the upgrade was supported by the state’s “sustained trend of structural balance, with operating surpluses that have led to a robust budgetary trust stabilization fund at its highest level ever, continued pension funding commitment following pension reforms, and funding these pension costs in excess of actuarially determined contributions.”

Kentucky’s “commitment and execution to strengthen its budgetary flexibility and long-term financial stability, which we expect will continue in the current and future budget cycles,” said S&P credit analyst Anne Cosgrove.

In May, Fitch Ratings raised Kentucky’s issuer default rating to AA from AA-minus and upgraded the state’s annual appropriation-backed debt and other state IDR-linked debt to AA-minus from A-plus. Fitch assigned a stable outlook to the credit.

Royden Durham, lead portfolio manager for the Aquila Churchill Tax-Free Fund of Kentucky, noted some of things that made the state attractive to investors.

“Some things just fell into Kentucky’s lap like logistics since it’s within about an hour and a half plane flight of 60% of the U.S. population. And also our bourbon tourism helped show off what a great state we have with relatively low cost,” he told The Bond Buyer in an October podcast.

“Kentucky revenue has grown substantially and has moved us from 37th most friendly business state to the 18th most friendly state to do business in,” Durham said. “The EV coordination of Ford and Tennessee and the car manufacturing infrastructure in Kentucky has also helped. With the increase in revenue has come the rating increases.”

Kentucky is also rated Aa3 by Moody’s Investors Service and AA-minus by Kroll Bond Rating Agency. Both have stable outlooks on the credit.