FRANKFORT, Ky. — The new fiscal year is just a month old, and by most measures, Kentucky is doing great.

Budget talks for next year are just getting started in Frankfort, where the environment is much different than in the past couple of years due to the pandemic.  

“In ’20, we turned on a dime and adjusted to what was going on in March of 2020,” said state Rep. Jason Petrie, R-Elkton, co-chairman of the interim budget committee. “We’ll do that again if we need to. Hope that we don’t have to.”

In Fiscal Year 2021, which ended June 30, Kentucky outperformed the tax revenue estimate in every major area:

• Sales and use tax: $328.2 million more
• Individual income tax: $328.2 million more
• Corporate taxes: $335.3 million more

Overall, the state ended the year with a surplus of more than $1.1 billion, most of which went into the state’s general fund surplus account, or as it’s better known, the rainy day fund.

“Kentucky has, for years, been one of the lowest-ranked states in terms of the size of its rainy day fund,” State Budget Director John Hicks said. “We have fixed that problem in one fiscal year.”

Petrie said he’s watching several factors that could have made last year look better than it was.

“Is that something that’s going to be a one-time bump, and it’s going to really subside over the next coming year or two? That’s what we’ve got to keep our eye on,” he said.

And during Wednesday’s budget committee meeting, several Republicans said they’re worried about how money from federal COVID relief bills inflated the economy.

“Our economy may very well be on fire, but it’s free money that’s being burned, and it’s the next generations that are going to have to pay that money back,” state Sen. Danny Carroll, R-Benton, said.

Lawmakers also said upcoming payments to help stabilize Kentucky’s pension funds could take up a lot of new revenue next year.

Workforce participation is another concern: the percentage hasn’t improved much since it dropped after the pandemic started last year.  

Petrie said if workforce participation stays where it’s at in Kentucky — 56.3% according to numbers presented to the committee on Wednesday — it could lead to lower revenue and a tougher time trying to recruit businesses.

Lawmakers will still have several more months to see where the economy goes from here before the next session starts, but they’ll know more when the Consensus Forecasting Group meets on Aug. 13 to give a preliminary revenue estimate for the next fiscal year.

None of the committee's Democratic members spoke at Wednesday's meeting.