Lexington's payroll growth is expected to grow at a slower rate over the coming years, likely impacting the city's ability to create new positions and recurring programs.
The district would generate an estimated $2.1 million annually for tourism marketing and destination development via a 2% fee on hotel rooms in the district.
Council to hear forecast projecting slower tax revenue growth
Lexington's payroll growth is expected to grow at a slower rate over the coming years, likely impacting the city's ability to create new positions and recurring programs.
In its Tuesday, February 24th Work Session, Council will hear a presentation from Michael Clark of the University of Kentucky's Center for Business and Economic Research about Lexington's employment trends and tax forecast for the next two years. This presentation will provide Council with important context for the city's revenue projections as they enter the annual budgeting season.
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Download: You can find the packet for this presentation here.
What are the employment trends in Lexington?
Clark’s presentation will show that Lexington's employment growth slowed significantly last year, returning to pre-pandemic growth rates, which were around 1% per year. Looking forward, Dr. Clark projects that Lexington’s employment growth rate will continue to slow down to under 1% in the next two years.
Image courtesy LFUCG
Some industries are growing faster than others. Between 2024 and 2025, the following industries grew or declined at various rates.
Government: 1,860 jobs added (4.2% growth)
Education and Health Care: 340 jobs (1.4% growth)
Leisure and Hospitality: 210 jobs (2.2% growth)
Construction, Mining, and Logging: 110 jobs (4.2% growth)
Professional and Business Services: 390 jobs lost (0.4% decline)
Lexington's unemployment rate remains low at 2.9%, lower than both the Kentucky and national rates.
Image courtesy LFUCG
While employment growth may be declining, wage growth remains high in Lexington. In 2024, wages grew at about 2.5%. Looking forward, Clark projects that wage growth in Lexington will be around 3.7% over the next two years.
What’s the forecast for tax revenues?
LFUCG’s payroll tax revenue growth comes from both increases in employment and increases in wages. In 2025, 72% of LFUCG’s payroll tax revenue growth came from wage growth, while only 27% came from employment growth. Clark’s analysis shows that two trends in Lexington’s employment — slowing employment growth and strong wage growth — will likely lead to tax revenue growth in the years ahead, but slower than in previous years.
Image courtesy LFUCG
Payroll Tax Revenue Projections:
FY 2025: $277.6 million (3.4% growth)
FY 2026: $293.0 million (5.6% growth, projected)
FY 2027: $303.6 million (3.6% growth, projected)
Lexington also receives revenue from a tax on the net profits of businesses. Those are projected to increase modestly over the coming years.
Net Profits Tax Revenue Projections:
FY 2025: $64.3 million (3.7% decline)
FY 2026: $66.6 million (3.6% growth, projected)
FY 2027: $67.4 million (1.2% growth, projected)
What are the implications for the budget?
The slower revenue growth projected for FY 2026 and FY 2027 will play a role in Council's budget decisions in the coming months.
Occupational license taxes are the city's largest revenue source, making up the majority of the general fund. While 5.6% combined growth in FY 2026 appears strong, it’s a slowdown from the double-digit growth rates Lexington experienced in past years, especially post-pandemic.
Slower revenue growth will likely affect the city's ability to add new positions or expand programs, particularly as costs continue to rise nationally.
Mayor Linda Gorton will present her proposed FY 2027 budget to Council in April. Council will hold budget hearings and must adopt a final budget before June 30, 2026.
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Watch the meeting: This Council Work Session will take place on Tuesday, February 24th, 2026 at 3pm in Council Chambers. You can attend in-person or watch live on LexTV.
