State lawmakers heard updates this week on the state's FY2026 financial performance, highlighting continued strength in the General Fund alongside ongoing concerns about the sustainability of Road Fund revenues.
General Fund
State Budget Director John Hicks presented the FY2026 General Fund end-of-year report to the Interim Joint Committee on Appropriations and Revenue.
Overall, FY2026 General Fund receipts increased 1.7% compared to FY2025. The state's two largest revenue sources continued to perform well, with individual income tax receipts rising 4.6% and sales and use tax receipts increasing 6.4% over the prior fiscal year.
Coal severance tax receipts also rebounded in FY2026, totaling $63 million, a 12.3% increase from FY2025.
The General Fund closed FY2026 with a $418.3 million surplus, driven by revenues exceeding the official forecast and reimbursements from the Federal Emergency Management Agency (FEMA).
The Budget Reserve Trust Fund ended the fiscal year with a balance of $3.7 billion before the added surplus. After accounting for the FY2027 and FY2028 one-time appropriations authorized from the fund, the Budget Reserve Trust Fund retains an unbudgeted balance of nearly $3 billion.
Road Fund
The Interim Joint Committee on Transportation heard testimony this week on the end-of-year FY2026 Road Fund report from the Kentucky Transportation Cabinet’s Office of Budget and Fiscal Management.
Overall, FY2026 Road Fund receipts were 2.2% lower than FY2025. The decline was driven primarily by lower motor fuels tax collections, which fell 5.5% from the previous year, a decrease of $45.7 million.
$20 million of the decline was attributable to the Governor's temporary 10-cent reduction in the motor fuels tax at the end of the fiscal year.
Co-Chairman Rep. John Blanton emphasized the long-term challenges facing Kentucky's transportation funding system as motor fuels tax revenues struggle to keep pace with inflation and rising construction costs.
“We have to rethink how we go about generating revenues for our Road Fund,” Blanton said. “Our rural secondary, our bridges, other roadways, resurfacing projects, all those things are falling behind because we don't have the revenues to do them. If we don't address this very quickly, it's going to cost more and more the longer we delay this because they're going to get worse and worse.”
One bright spot for the state Road Fund was the motor vehicle usage tax, which generated a record $734.2 million in FY2026, an increase of 2% over FY2025.
Impact on counties
For counties, the decline in motor fuels tax receipts is particularly concerning. Counties receive 18.3% of Kentucky's motor fuels tax revenues, making it the primary funding source for county roads.
Unlike the state Road Fund, counties do not benefit from significant alternative revenue sources such as the motor vehicle usage tax. As a result, continued declines in motor fuels tax receipts have a disproportionate impact on counties' ability to maintain roads and bridges.
