In the final hours of the 2026 legislative session, the General Assembly passed HB 869. This is the second voluminous revenue bill enacted in less than two weeks, pushed through quickly without public input or committee review. The legislation expands tax breaks for already-subsidized industries with a focus on real estate developers and fuel producers. It also includes clean-up language for a previously passed revenue bill, exposing the pitfalls of rushing legislation without transparency. HB 869 continues a pattern of opaque decision-making that keeps the public in the dark on costly legislation that benefits powerful industries and takes dollars from funding for schools, health care and other public needs.
Refundable credits that subsidize businesses regardless of tax liability
Real estate developers were once again the biggest beneficiaries of last-minute tax breaks this session, with multiple new subsidies included in both HB 757 and HB 869. HB 869 establishes a new refundable and transferable credit against the income or insurance tax for the redevelopment of mixed-use buildings in urban areas. Eligible buildings must have over 225,000 square feet of leased space and a 50% vacancy rate for the six months leading up to the rehabilitation project. The credit amount is 20% of the eligible rehabilitation expenses, with a $25 million cap per eligible taxpayer, and an annual overall cap of $50 million. These credits are available for tax years beginning after Dec., 2026.
In addition to this tax break, real estate developers also benefited from provisions in HB 757 that shift more of the historic preservation tax credit to commercial developments (with 85% of this $100 million annual refundable credit now reserved for commercial development), and an incentive added at the last minute for what appears to be a specific project in downtown Louisville.
These real estate development credits do not require that any benefits flow directly to the people of Kentucky; in fact, the only guaranteed beneficiaries of the credits are the developers. The credits do not require that any jobs be created or retained, and the entities receiving the credit do not have to be in Kentucky or have a Kentucky tax liability. There is also no prohibition against these credits stacking if a project meets the requirements for both the new credit and the historic preservation tax credit program.
Another refundable credit to benefit businesses in the bill would allow entities approved for tax breaks under the Kentucky Business Incentive program to receive an extra payment, in addition to income tax incentives and wage assessments, based on a percentage of the amount paid to full time employees up to the total incentive amount granted to the company for that fiscal year. These payments have an overall cap of $4 million per year and are effective for companies approved for incentives on or after Jan. 1, 2026.
Refundable credits are very different from regular tax credits because they require payments to be made to the entities being subsidized regardless of whether there is any tax liability. In contrast, most tax credits offset amounts that would otherwise be paid in taxes, and if there aren’t enough taxes owed the credit amount is reduced. Refundable credits have become more popular for heavily subsidized industries like real estate development because existing subsidies have already reduced their tax obligations so much that they pay very little in taxes. Refundable credits are essentially guaranteed payments from the commonwealth to entities that qualify for them, and they are made regardless of the current fiscal condition of the commonwealth.
New credits stacked on top of existing credits reduce revenues further
Additional income tax credits are included in the bill for alternative jet fuel and agriculturally based jet fuel producers and feedstock providers. This industry already receives subsidies, and the new credit stacks on top of existing credits for some producers. This credit is capped at $20 million annually, and begins on Jan. 1, 2029, so that its fiscal impact is outside of the current budget period. In addition, the bill provides commercial airports with a rebate of up to 75% of the sales taxes paid on alternative jet fuel and agriculturally based jet fuel, with rebated amounts to be invested in the airport, beginning Aug. 1, 2026. There is no cap on this incentive.
The three credits with caps mentioned above will reduce annual revenues by $74 million when all are fully phased in if the cap amounts are reached. Because they are tax credits that reduce revenues on the front end, developers, fuel producers, and businesses benefiting from the Kentucky Business Incentive Program will get paid regardless of what happens with revenues. These credits were approved after the state budget for the next biennium has already been passed – a budget that requires most state agencies to absorb a 4% cut in 2027 and an additional 3% cut in 2028 and that does not sufficiently fund senior meals, foster care or Medicaid.
The pitfalls of no transparency
The hasty passage of important legislation inevitably creates problems. Notably, 12 of the 73 sections in HB 869 were required solely to correct errors or address unintended outcomes from HB 757 the revenue bill that traveled along with the budget and passed just 11 days prior. This pattern demonstrates that bypassing transparent legislative processes not only risks public trust but leads to flawed fiscal policy.
The rapid and last-minute passage of HB 757 via a “free conference committee” — a process that permits a final, non-amendable vote without public oversight in the waning hours before the General Assembly recessed for the veto period — serves as a cautionary tale.
When legislation is rushed, the details are rarely understood before the bills are passed. For example, the initial language regarding sales tax credits in HB 757 was broad enough to encompass regular race meets at venues like Churchill Downs and Keeneland. After public scrutiny highlighted these implications, HB 869 included language to narrow the scope of the provisions solely to golf events. While the floor explanation suggested this was an “unintended consequence,” it underscores the danger of legislating in the dark: if legislators do not have the time to read the text, they cannot know what they are voting to enact.
The legislative process is designed to be deliberative for a reason: to ensure that every dollar of public revenue is accounted for and that the potential impacts of law are thoroughly vetted before they take effect. The reliance on late-session “free conference committees” and the rapid-fire passage of complex tax policy removes the public from the equation and creates a cycle of error-prone, reactionary legislating where powerful special interests have the upper hand.
As we look to future sessions, the General Assembly must prioritize transparency over speed. Kentucky’s fiscal stability and the needs of our most vulnerable citizens require a legislative process that allows for rigorous debate, public input and a clear understanding of the long-term cost of corporate tax breaks.
