- Associated Press - Wednesday, December 16, 2015

FRANKFORT, Ky. (AP) - Kentuckians are earning more money, and state officials will soon be making plans to spend it.

Wednesday a group of state economists added more than $222 million to the state budget that ends June 30. They also approved revenue estimates for the first two years of Republican Gov. Matt Bevin’s administration. Bevin will have $10.6 billion to spend in the 2016-17 fiscal year and $10.8 billion to spend the year after that.

Analysts expect Kentuckians’ personal income to increase at least 4 percent next year, meaning they will pay more in income taxes. Since 2003, Kentuckians’ income has risen on average 3.1 percent each year.

“Historically, 2 percent wage growth is pretty typical. I don’t think 4 (percent) is crazy,” said Chris Bollinger, a member of the Consensus Forecasting Group and an economics professor at the University of Kentucky.

Kentuckians’ wages are rising because the state’s workforce is shrinking. Fewer people to fill open positions entice employers to raise wages to attract more qualified applicants.

“More people are retiring, leading to a smaller labor force to draw from,” said Justin Tapp with the governor’s office for economic analysis.

Bevin will use the revenue forecasts to craft his first state spending plan, which he will present to a joint session of the state legislature in January. Lawmakers then must pass a two-year state spending plan. Although Bevin will have more money to spend than previous governors, it likely will not be enough to cover all of the state’s obligations.

Republican state Senate leaders estimate they will need about $250 million to cover the additional 400,000 people who now get their health insurance through Medicaid because of the federal Affordable Care Act. And the state’s two major public pension plans face massive unfunded liabilities. The Kentucky Teachers Retirement System has an estimated shortfall of $24.4 billion by itself.

The group also approved estimates for Kentucky’s road fund, which is mostly made up of gas taxes and goes to pay for road and bridge repairs and construction. The fund had been losing money because it was tied to the wholesale price of fuel, which has been declining lately. Earlier this year the state legislature passed a law making sure the gas tax would never fall below 26 cents per gallon.

Officials predict the road fund will generate $1.46 billion in the 2017 fiscal year and $1.48 billion in the 2018 fiscal year.

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This story has been corrected to say Kentuckians’ average income growth was 3.1 percent since 2003.

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