Governor Beshear’s 2024-2026 budget proposal expands investment in a variety of public services, with a focus on education and infrastructure, and pays for that expansion with billions of dollars otherwise going into excessive reserves. Top spending priorities include an 11% raise for all teachers and other school employees, universal preschool for four year-olds, and monies for water and wastewater infrastructure.
The governor’s budget substantially increases funding while leaving $3.7 billion in the state’s Budget Reserve Trust Fund (BRTF), far more than is needed to protect against future emergencies and the next economic downturn. By not stockpiling additional monies beyond that $3.7 billion, the budget is not designed to trigger more income tax cuts under the legislature’s formula.
11% school employee raises and universal preschool top expanded education funding
The governor proposes to raise pay for teachers and all other school employees including bus drivers, custodial and cafeteria workers by 11%. On top of the 3% average raise given by school systems last year, this raise would give educators an increase approximately equal to the 14% raise given over two years to state employees in the last budget. The budget provides the $545 million for this increase each year directly to school districts to fully cover the cost.
The educator shortage is a growing problem, and pay plays a significant role. New data from the Kentucky Department of Education shows average statewide teacher pay increasing only an inflation-adjusted 0.6%, or $327, this school year due to stagnant state funding. That puts average pay 14.2% below 2008 levels once inflation is taken into account. In addition, the state has experienced a 12.9% decline in bus drivers as many have left for better pay and working conditions, on average doubling their pay when they left for private sector jobs.
In addition to the funds for the 11% raise, the governor’s budget includes an increase to the state’s main formula for funding public education, Support Education Excellence in Kentucky (SEEK). The budget increases the SEEK funding base per-pupil guarantee by 4%, from the current $4,200 to $4,368 in 2025 and 2026. That increase costs $126 million in 2023 and $114 million in 2024.
The governor’s budget adds $124 million each year to fully fund the cost of school transportation. Though the legislature is required under statute to pay 100% of school transportation costs, the General Assembly has suspended that law in every budget since 2005, and funded a lower amount instead. This underfunding has contributed to bus driver shortages across the state.
Additionally, the governor’s budget adds $172 million to fully fund universal preschool for 4-year-olds. Other items in the education budget include student loan forgiveness for teachers, professional development and textbooks, all of which were not funded in the last state budget. The budget also includes significant offers of assistance for school construction and monies to complete prior school construction projects where inflation has made costs higher than previously anticipated.
In total, the governor’s budget would increase General Fund appropriations to P-12 education by 22% compared to the current budget, likely the largest one-year increase in school funding since the Kentucky Education Reform Act.
Proposal uses substantial available one-time funds to invest in a variety of infrastructure needs
Infrastructure is a second top theme in the governor’s budget. A major proposal is to provide $500 million to localities to fund water and wastewater improvements. Also included is $184 million for state park improvements on top of the release of another $71 million for parks set aside but not spent in the last budget; $300 million to provide matching funds for major infrastructure projects like the I-69 corridor and four-laning of the Mountain Parkway; $400 million in bond funds for capital projects at higher education institutions; $50 million for airports; and $100 million to provide matching funds to support local applications for the extensive federal grants now available due to new federal laws.
Also, the budget includes $5 million each year to the Kentucky Housing Corporation for the state’s Affordable Housing Trust Fund. This would be the first General Fund investment directly in the fund, although it is only enough to allow small steps toward addressing the state’s enormous and growing affordable housing problem. The budget also includes $75 million for the EKSAFE fund to provide additional aid to eastern Kentucky communities rebuilding from the devastating 2022 floods.
Budget includes meaningful state employee raises and help for state retirees
The governor’s budget includes a 6% raise for state employees in 2025 and a 4% raise in 2026. In addition, it includes changes to address wage compression through a 1% raise for newer employees up to a 7% raise for long-term workers. On top of raises included in the last budget, that means state salary increases of 27% to 35% over a four-year period.
But those significant raises are desperately needed to begin making up for a period in which state employees received no raises for 10 of 12 years and after defined benefit pensions were taken away for employees hired after 2013. These increases, along with targeted previous raises for certain positions like social workers, are already helping with severe recruitment and retention challenges. The governor also proposes loan forgiveness for social workers and other state employees (along with teachers, as mentioned above). And the budget includes monies to move the state hazardous duty retirement plan, which includes state police, juvenile justice workers, and security staff at adult correctional facilities, back into defined benefit pensions.
Importantly, the budget includes $100 million for state retirees to receive an additional retirement check to begin helping address the fact they haven’t received a cost of living adjustment in their pensions since 2012.
Budget includes modest increase for higher education, full funding of need-based college aid
The governor’s budget increases base funding for higher education by 4% each year. The budget also provides additional funding to Kentucky State University in recognition of longstanding inequities in its funding levels recently identified by the federal government in a letter to the state. As in the last budget, it includes full funding of the lottery-supported need-based college scholarship programs.
Plan includes some progress on other basic needs
The governor’s budget includes $68 million in 2025 and $73 million in 2026 to help address the coming child care cliff with the end of federal pandemic funds. This falls significantly short of the estimated $300 million Kentucky needs to fully replace those funds (though is intended to work in combination with the $172 million the governor is proposing annually for expanded preschool). The governor’s budget uses these funds to maintain higher reimbursements rates for the Child Care Assistance Program (CCAP) and to expand assistance for 0 to 3-year-olds not eligible for CCAP.
The budget also includes 750 new Medicaid slots for people with disabilities, chipping away at the waiting lists that include more than 12,000 Kentuckians. It also includes $10 million each year for expanded funding for kinship care of children, $10 million in 2026 for higher foster care reimbursements and $10 million each year for senior meals. It appropriates $19 million across the biennium to expand mobile crisis intervention services. And it includes $5 million each year to support reentry programs for those leaving prisons and county jails.
Additional support is provided for the Department for Juvenile Justice, including $3.9 million in each year to support more community placement options for judges and funding to upgrade and retrofit detention facilities to allow for regional detention. In addition, funding is provided for the renovation of a building on the grounds of one of the state psychiatric hospitals to provide additional psychiatric treatment services for children served by both the Department of Juvenile Justice and Department of Community Based Services.
Budget still leaves very large rainy day fund, doesn’t aim for more tax cuts
The governor’s budget includes significant new spending but also maintains the current BRTF balance of $3.7 billion, which equals 23% of expected state revenues in 2026. That surpasses the 15% level most experts say is adequate to prepare for future emergencies and the next economic downturn. The state expects a surplus of $1.9 billion in the current year, meaning the BRTF would climb to well over $5 billion by this summer if the funds aren’t appropriated for pressing needs across the commonwealth as the governor proposes in his plan.
The spending levels in 2025 and 2026 in the governor’s budget would not trigger more income tax cuts under the legislature’s formula, wisely preventing more expensive tax reductions that go overwhelmingly to the wealthy.