How Will Lexington’s Economy Grow Over the Next Two Years?

In Tuesday’s Budget, Finance, and Economic Development (BFED) Committee, Councilmembers will hear two presentations on Lexington’s industry, workforce, and tax revenue growth. They will also hear a Monthly Budget Update on the Fiscal Year 2024 (FY24) budget.

While none of these presentations set concrete General Fund projections for the next Fiscal Year, the data presented are incredibly important as Council thinks about what the expected economic growth for Lexington will be over the next year, and how that may impact the upcoming budget.

Monthly Financial Update

As of January 2024, the current FY24 Budget is showing a deficit of just over $41 million. Importantly, this is almost entirely due to the Fund Balance allocations made by Council in late 2023. Without the use of Fund Balance dollars, this current year’s budget would have a surplus of $14 million.

The city is performing well on its current year’s adopted budget. Without accounting for the above Fund Balance transfer and expenses, the city is running a $14 million surplus.

• Actual revenue earned by LFUCG is slightly outpacing the revenue projected in the Budget, largely due to higher-than-expected revenue from the Insurance Premium Tax and Investment Income.

• Payroll Withholding Tax revenue is slightly overperforming Budget projections by 3%.

• Compared to January 2023, Payroll Tax revenue is up 7%.

• Net Profit Tax revenue from businesses is slightly higher than Budget projections by 1%, but is down from January 2023 revenue by 14%.

You can view the full presentation on page four of this packet.

Occupational Tax Forecast

Dr. Michael W. Clark of the University of Kentucky’s Center for Business and Economic Research will provide an overview of revenue growth trends and projections for the two primary taxes LFUCG collects related to employment – the Payroll Withholdings Tax that comes straight from Lexington employees’ paychecks, and the Net Profits Tax which comes from profits and operational license fees from Lexington businesses.

Overall, Lexington is expected to continue its economic growth over the next Fiscal Year. However, that growth will slow down compared to the rapid growth seen in Fiscal Years 2022 (FY22) and 2023.

• Fiscal Years in Lexington run from July to June – so FY23, for example, refers to the period from July 2022 to June 2023. Keep this in mind since we are not quite through FY24 yet, so we do not know the final numbers for FY24’s tax revenue.

Republished from CivicLex.

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