Kentucky lawmakers are headed into their 2022 budget session flush with cash – including an extra $3.4 billion for the state’s two-year spending plan – according to the Kentucky Center for Economic Policy, a think tank that’s calling for an end to years of budget austerity.

“The discussion around Kentucky’s budget typically focuses on how the state cannot afford adequate investments in schools, child welfare, public health, libraries and more,” KCEP said in a report Monday. “That narrative often excludes the impact of proliferating tax breaks on what we can afford.”

Due in large part to federal coronavirus funds, Kentucky’s General Fund receipts grew by 10.9% in fiscal year 2021 – the highest annual growth rate in more than a quarter-century, according to the center. Actual revenues exceeded the estimate by more than $1.1 billion. That’s the largest in Kentucky’s history.

Kentucky’s budget forecast anticipates an even larger surplus at the end of the current fiscal year, and the state also has $1.1 billion in unspent American Rescue Plan Act dollars it can spend on pandemic recovery and remediation.

However, despite the billions in federal funds that have flowed into the state, it won’t go very far without reining in the many tax breaks lawmakers in Frankfort have granted over the years, KCEP said. Many of them go to special interests, diverting revenue that could go to baseline services like schools, colleges, child care and human services providers, KCEP said.

“We’ve been cutting these vital services for far too long,” Jason Bailey, executive director of the Kentucky Center for Economic Policy, said in a news release. “With historic revenues, there is no excuse not to pay our teachers, social workers and other state employees what they deserve or to better fund the public services that make us educated, healthy and safe. The legislature can recommit to a thriving, prosperous commonwealth with this budget.”

The center said that while the General Assembly kept spending last year mostly flat when it enacted a one-year state budget, at the same time it passed “more subsidies for corporations through a variety of tax breaks that will further erode the tax base in the future.”

The Kentucky Center for Economic Policy said they include an expansion of the film tax credit to $75 million starting in 2023, a significant increase in the cap on the historic preservation tax credit from $6 million to $100 million – including a special $6 million carve-out for the Seelbach Hotel in Louisville – and new credits for cryptocurrency mining companies.

The Office of the State Budget Director estimated the cost of these credits to be $161.5 million in fiscal year 2022 alone, KCEP said, with larger impacts expected in future years.

The state has also pledged up to $410 million of the surplus in subsidies for two battery production plants to be built by Ford and SK Innovation, KCEP said.

“Because of the way tax expenditures work, these programs receive priority funding over everything else that state government provides and pays for, including education, assistance for children and families and other important services,” the KCEP report said.

– The report can be read in full at kypolicy.org.

– Follow education reporter Aaron Mudd on Twitter @NewsByAaron or visit bgdailynews.com.

– Follow education reporter Aaron Mudd on Twitter @NewsByAaron or visit bgdailynews.com.

Education reporter. Covers education and related issues, focusing primarily on the Bowling Green and Warren County public school districts and Western Kentucky University.

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