Economists forecast lower Kentucky revenue growth amid ‘much uncertainty’ in economy

A group of economists in charge of forecasting how much revenue Kentucky will bring in the next two fiscal years predicted a more pessimistic financial outlook in the coming years, citing a number of uncertainties in the economy. 

During a Tuesday meeting, the Consensus Forecasting Group, made up of economists from around the state, chose a more “pessimistic” projection of future state revenues that will still see the state’s General Fund grow over next two fiscal years. 

The group’s projection estimates the General Fund will grow by 5.7% in fiscal year 2027, and 0.4% in fiscal year 2028, reaching nearly $17 billion in revenues by the end of that fiscal year. 

The economists chose the more “pessimistic” revenue projection over two other revenue projections — a “control” projection and an “optimistic” projection — after hearing presentations on how various state revenue sources were faring, including impacts on increasing energy prices from the ongoing war in Iran. 

Michael Jones, the deputy executive director for policy and research within the state budget office, told the group the pessimistic revenue scenario is influenced by “continued strife in the Middle East” including the “Iran conflict,” the “uncertainty of energy supplies” and a potential “fall off in AI investment.” 

Member Bruce Johnson, a professor emeritus of economics at Centre College, told his fellow economists that even with the group choosing the less rosy financial outlook, he believes that the group would likely be called in to revise projections downward even further. 

“There is so much uncertainty, and every day is a different surprise, and it’s usually a bad surprise,” Johnson said. “If things seem to be going — if they’re going to go the way they seem to be going — there’s going to be a lot more disruption in international markets and domestic markets, and I think we’ll be back.”

Johnson pointed to the “nationwide backlash to data centers” after another economist in the group mentioned that some signals show “AI may be slowing.” 

Beshear touts forecast as providing more funds

The state’s Democratic governor, however, saw things a bit rosier. 

In a press release issued Tuesday afternoon, Democratic Gov. Andy Beshear said the projected growth in General Fund revenues exceeds what the GOP-controlled state legislature had budgeted for over the next two years by more than $1.7 billion. 

He said he wanted the extra funding to go toward implementing universal preschool, “closing the Medicaid gap” and other needs amid President Donald Trump’s “harmful tariffs, cuts to healthcare and ongoing war of choice.”  

“Thanks to strong fiscal management by my administration and our surging economy, Kentucky is in a strong position, and today’s revision by the Consensus Forecast Group confirms that,” said Gov. Beshear. “I am going to make sure these dollars go directly to the areas that help lift up Kentuckians during this challenging time, because that’s the right thing to do.”

State Budget Office Director John Hicks had made the request for the group to meet again to revise their revenue forecasts after the state had received hundreds of millions of dollars of “unexpected” corporate income tax payments this summer, according to the press release from the governor’s office.”

In a letter earlier this month, Hicks wrote to state lawmakers that the state missed a fiscal trigger by more than $1 billion to further cut the state’s income tax rate.

In a statement provided through a spokesperson, Sen. Chris McDaniel, R-Ryland Heights, the co-chair of the Interim Joint Committee on Appropriations and Revenue, said it was important to keep current financial numbers “in perspective,” pointing to how the revised revenue estimates are “nearly $1 billion higher than the current official estimate.”

“The Consensus Forecasting Group took a cautious approach today in light of real uncertainty in the national and global economy,” McDaniel said. “The group also made clear that a share of the increase is tied to unusual corporate payments and other revenue trends that remain uncertain. That is precisely why I believe Kentucky has benefited from disciplined, biennial budgeting that provides stability and allows us to take a long-term view.”

McDaniel said that approach should continue “rather than rush to make new commitments based on revenue that may not prove to be recurring.”

In a statement, Kentucky House Speaker David Osborne, R-Prospect, said lawmakers would consider the Consensus Forecasting Group’s projection as lawmakers “monitor the current budget and prepare the next one.”

In December, the group had forecasted that revenue would fall short by more than $150 million for fiscal year 2026 that ended this summer.  That same month, the budget shortfall led to Democratic Gov. Andy Beshear issuing a 3% cut across a number of agencies within the state executive branch. He also extended requests for budget cuts to Republican state constitutional officers, a request some GOP officials rebuked.

This story has been updated with statements from Republican state lawmakers.