Congress is considering huge cuts to Medicaid, SNAP, energy and higher education in an attempt to pay for just a portion of the enormous cost of tax cuts skewed to the wealthy. One way the U. S. House plan cuts funding for these programs is to pass the buck to states for substantial costs, especially for SNAP food assistance. The House’s message to states is “you figure it out.”
But these additional expenses would come at the same time the risk of a recession is rising due in large part to tariff disruptions. And Kentucky’s tax receipts are already weakening because of individual income tax cuts that the General Assembly is phasing in. The state will create a new two-year budget in early 2026, but will face serious challenges addressing hunger and funding education, health care and other public needs if the federal package of policies becomes law.
SNAP cost shift to states is hugely expensive
The budget plan makes the biggest cuts to SNAP food assistance in history, raising the cost of groceries for the 575,000 Kentuckians who participate in the program. For the first time, the plan will also make states pick up between 5% and 25% of the cost of SNAP benefits, which the federal government has covered since the program began more than 50 years ago. In Kentucky, that will result in the state needing to cover between $57 million and $286 million more annually depending on the state’s error rate for the year, which reflects largely unintentional under- and over-payments. In addition, the plan would make the state pay 75% of program administration costs as opposed to the 50% share it must pay currently. That would shift an additional $63 million to the state.
If the law were in place now, the state would have to budget an additional $253 million to maintain SNAP enrollment based on the error rate in the current year. That is more than the $228 million the state spends on the University of Louisville and Northern Kentucky University combined; more than the $196 million it spends on the Department of Behavioral Health, Developmental and Intellectual Disabilities that provides mental and physical health, substance abuse and other services to over 175,000 Kentuckians; and the same as the cost of paying the salaries and benefits of 3,135 Kentucky public school teachers.
To address this new expense, the state legislature would either be forced to raise taxes, cut back on SNAP food assistance, exit the program entirely, or cut other investments in public schools, higher education, health care, infrastructure or other needs.
In addition, SNAP costs go up during economic recessions as more people become eligible due to job loss. At the same time, state tax receipts fall. SNAP participation is relatively low now in part because of a comparatively strong economy. But in the aftermath of the Great Recession, as many as 879,000 Kentuckians were receiving SNAP, or 53% more people than today. Under the House bill, Kentucky would be asked to pick up 5% to 25% of those added costs even when funds are even harder to find. That weakens the anti-recession power SNAP provides to the 4,700 stores in Kentucky that accept SNAP and their local economies.
Congress is heaping other economic burdens on states to figure out
While the SNAP cost shift is explicit, the House budget and tax bill also puts other cost burdens on states they will have to absorb.
First, the bill will force an estimated 282,000 Kentuckians to lose access to Medicaid and cause another 47,000 to lose health coverage due to higher costs on Kynect, the health insurance exchange. The Medicaid cuts alone will result in $3.1 billion less being spent on Medicaid in Kentucky in 2028, including a loss of $2.7 billion in federal monies. Those are dollars that do not go to hospitals and other healthcare providers.
The resulting threats to Kentucky are enormous. Hospitals will still serve these newly-uninsured individuals through emergency departments, but will no longer be compensated for this care. This revenue loss may result in some rural hospitals and health providers closing, especially in a state where Medicaid covers more than 50% of the population in many rural counties.
These cuts will also hamper local economic activity due to reduced consumer spending from a smaller health care workforce. A rising uninsured population means more people taking on medical debt and facing potential bankruptcy. And Kentuckians will be diverting more of their income to health care due to higher premiums that reflect the cost of uncompensated care and as premiums rise in Kynect due to expired subsidies. The Center on Budget and Policy Priorities (CBPP) estimates that a 60-year old Kentucky couple making $82,000 would see their premiums for a Kynect benchmark plan increase from $6,970 to over $22,527.
The cuts to Medicaid and SNAP will also take an economic toll in reduced health. Inadequate nutrition harms kids’ growth and development and limited access to food and health care worsens chronic conditions like diabetes for adults. These cuts can harm success in school and higher education, take people out of the workforce and even limit life expectancy.
And there will be new, expensive administrative burdens on states to implement paperwork requirements in Medicaid and new procedures that the bill mandates in SNAP. The cost shift in SNAP will incentivize states to create ways to keep people off SNAP benefits in order to avoid “errors” that result in states taking on a greater share of costs.
The House plan will result in other economic costs for Kentucky:
- Kentucky is one of the top 10 states for clean energy job growth in recent years driven by new investments contained in the federal Inflation Reduction Act. But the House plan cuts more than $500 billion of the tax credits driving these investments over the next 10 years. That will increase the cost of installing low-cost clean energy and cause projects currently planned across the country to be canceled. That could lead energy costs in Kentucky to increase 7.3%, according to one estimate, and put at risk thousands of jobs.
- The House plan cuts over $350 billion over 10 years in higher education, including cuts to Pell Grants that could result in 19,400 Kentucky students losing all of their financial aid and another 42,200 losing some aid. Increased cost of college will cause students to drop out or take on higher student loan debt, either of which will hinder Kentucky’s economy.
- The House bill requires additional paperwork burdens for 261,850 working families in Kentucky that receive the Earned Income Tax Credit (EITC), which could result in families not receiving the benefit and substantial dollars no longer flowing into Kentucky’s economy.
State revenue and economic picture is darkening due to income tax cuts and a fragile national economy
The Kentucky legislature’s efforts to reduce the state individual income tax are already weakening state tax revenue. According to a new forecast by the Office of the State Budget Director, revenues are projected to fall slightly by $9.2 million this fiscal year compared to last year. That would be only the 4th time in the last 50 years that revenues have declined year-over-year, and the other instances were during economic recessions. If revenue had just kept pace with growth in inflation, it should be up by $358 million this year.
The state’s forecast also shows revenue falling an additional 2.3% in the first six months of the new fiscal year that begins in July. If that decrease occurs and continues for the entire fiscal year, it means an additional $358 million in lost revenue. The legislature enacted another half-point cut in the individual income tax rate, from 4% to 3.5%, that will go in effect Jan. 1, 2026, a reduction that could easily make even that revenue goal optimistic.
And those projections are being made before the economy has felt the full effects of tariffs, trade disputes and other economic uncertainties. Consumer and business confidence are down, and numerous news outlets report businesses expecting reduced sales and higher prices in the coming months. Increased household costs due to tariffs also mean squeezed family budgets at the same time Medicaid, SNAP and other benefits may be cut and state services are at risk due to these new cost shifts.
