The Kentucky state legislature has no more important job than passing a state budget. The budget allows us to come together to pay for schools, roads, state parks and many other programs and services that benefit us all. But while the budget effects everyone in Kentucky, the budget process can be complicated and difficult to follow. This guide aims to demystify the process.
What is the Kentucky state budget?
The budget is what we call a handful of bills that Kentucky lawmakers, also know as the General Assembly, pass every two years. The executive branch’s budget is the largest and most significant of these bills, but lawmakers must also pass a legislative branch, judicial branch and Transportation Cabinet budget every other year. Taken together, the budget is our state’s guiding moral document, outlining how the state will invest in education, health, transportation, public safety, human services and other areas that help build a strong economy and help residents thrive. By deciding how the state will both raise and spend its money, the General Assembly establishes the blueprint for Kentucky — who we are, what we value, what we aspire to be, and how and whether our communities prosper and flourish.
Where does the money spent in the budget come from?
A few different places, including the federal government, the taxes Kentuckians pay to the state, and other sources, such as tuition payments to state universities.
Money from the federal government makes up the largest portion of the state budget. This money comes in the form of grants, direct appropriations for specific projects and other forms of assistance for purposes such as Medicaid, education, school meals and health care. The General Assembly typically has very little say in how these federal funds are spent, but in some cases, how much money we get from Washington can be determined by how much the state chips in.
The primary pool of money the state controls is referred to as the General Fund, which is largely funded through the sales tax and individual income tax. It currently totals about $15 billion a year. This number can fluctuate year-over-year depending on several factors, including economic conditions. That’s why an assortment of taxes on a variety of bases ensures more stable funding for schools, health care, and other priorities.
Historically, the individual income tax has been the largest source of revenue for the General Fund, but after a string of income tax rate reductions, sales and use tax recently took the lead, as you can see in the graph below.
This is less than ideal because the income tax asks more of those who have more while sales taxes ask more from working families and the elderly.
Once all of the current rate cuts are fully phased in, the state will be missing out on $2.1 billion in revenue each year. That’s money that could be spent on our kids and families. Instead, due to the manner in which taxes have been cut, that money is largely going into the pockets and investment accounts of the wealthiest Kentuckians, as illustrated in the chart below.
What does the budget pay for?
Since the General Fund is Kentucky’s main discretionary revenue pool, General Fund appropriations are a good place to examine how the state prioritizes its dollars.
The largest state expenditure by far is P-12 public education, followed by Medicaid and the criminal justice system, which includes the operation of state prisons and courts. The state also funds programs that keep women healthy, help families afford childcare, protect the environment, manage Kentucky’s state parks, feed thousands of people and maintain our road systems.
Sounds important! How are decisions made about how this money is spent?
It’s quite a process. Though budgets are only passed in even numbered years, the planning and prep work largely takes place in the preceding year. During this interim period, state agencies prepare budget requests, which inform the budgets designed by the governor and General Assembly (more on the difference between those soon).
Because the budget is written two years at a time, it’s not always clear how much money the state will bring in over that period. To give everyone a better idea how much will be available to spend, there is a revenue estimating process conducted by a group of economists called the Consensus Forecasting Group (CFG).
The work done during the prior year culminates in the passage of a budget during the following even numbered year. Historically, the governor’s budget is introduced first and the General Assembly amends that bill, however over the past several sessions the House has disregarded the governor’s proposal and has instead introduced its own budget.
Historically, the governor’s budget is introduced first and the General Assembly amends that bill, however over the past several sessions the House has disregarded the governor’s proposal and has instead introduced its own budget.
Once the budget bills are filed, hearings are conducted in the House in budget review subcommittees. The budget may be refined and amended during this period, though major changes are rare since the House started introducing its own budget rather than amending the governor’s proposal. Following the subcommittee hearings, the budget bills are voted on by the full House Appropriations & Revenues (A&R) Committee before being voted on by the full House. A majority vote of 51 is required for passage.
The budget bills then move to the Senate, where amendments are made before the Senate’s version of the budget bills are passed, also on a majority vote.
Differences between the budget bills passed by the House and Senate are worked out in what is called a free conference committee. Once finalized, the bills are put up for another vote in the House and Senate.
The bills then go to the Governor, who has four options:
- Sign the bills into law
- Let them become law without signature
- Veto, or reject, an entire bill
- Veto specific parts of a bill (referred to as a line item veto), which the Governor can only use with appropriations bills, or bills related to how the state spends money
The legislature can then choose to override the governor’s vetoes, which requires 51 votes in the House and 20 in the Senate. The budget bill then becomes law and is effective on July 1 for the next two years. You can find a copy of the enacted budget on the website of the Kentucky Office of State Budget Director (OSBD), along with other documents that explain and support the budget documents.
What happens after the budget is passed?
For the most part, passage is the end of the budget process, although there is regular reporting that occurs so that revenues and spending can be monitored. Every three months, the OSBD compares the official revenue forecast on which the budget was based to actual and projected receipts so that all branches of government are aware of whether adjustments need to be made. If revenues differ significantly from those relied on for the budget, the CFG may be called in to revise the estimate, resulting in the use of either the budget reduction plan, which directs how spending cuts should be made, or surplus expenditure plan, which directs how extra funds should be spent – both are included in the enacted budget.
What if there’s an emergency or the state has to spend unexpected money after the budget has already passed?
When tax collections are less than projections, called a revenue shortfall, or emergencies and unanticipated needs arise, money in the state’s Budget Reserve Trust Fund or “rainy day fund” may be used to prevent budget cuts.
What can we do to support the crafting of a budget that makes a better Kentucky for us all?
There are several key players involved in the budget process, including the General Assembly, the governor, the judicial branch and other government agencies. But one of the most important players in this process can and should be us, even if we don’t have an official formal role like the other actors mentioned.
By understanding the basics of the budget process, we can be better advocates for a healthy budget that supports the programs and services that sustain economic and social health across the state. Following committees of interest, staying updated through online tools like the LRC’s and OSBD’s website, paying attention during the interim by watching committee meetings, and meeting with representatives and senators are just some examples of how we can be active in the process and advocate for a budget and revenues that equitably serve Kentuckians across the commonwealth.
How can I learn more about being involved?
Below are several resources advocates can add to their state budget advocacy toolbelt:
- Budget of the Commonwealth: The State Budget Director’s webpage contains downloadable budget documents, including the full biennial Budget of the Commonwealth.
- Tax Expenditure Analysis: Kentucky’s biennial tax expenditure report (on the Budget Director’s webpage) allows you to see what groups receive tax breaks, and how much they cost the state.
- Legislative Research Commission: The LRC webpage provides information on current legislative activity, profiles of state senators and representatives, and basic information about the General Assembly. It also contains a full online version of Kentucky laws.
- Who Pays: 7th Edition: The Institute on Taxation and Economic Policy explains why Kentucky’s tax code is upside-down.
- A State Budget for an Affordable Kentucky: Preview of the 2026–2028 Budget of the Commonwealth: KyPolicy’s preview analysis of the 2026-2028 state budget.
Helpful Terms
Appropriation – An appropriation authorizes the expenditure of money, typically for a certain amount and a specific fiscal year, although not always.
Branch budget – An enactment by the General Assembly which provides appropriations and establishes fiscal policies and conditions for the biennial financial plan for the judicial branch, the legislative branch, and the executive branch, which includes a separate budget bill for the Transportation Cabinet.
Branch budget recommendations – Are made by the Governor for the executive branch, the Chief Justice for the judicial branch, and the Legislative Research Commission, for the legislative branch, and contain a complete financial plan for the branch of government for each of the next two fiscal years, including a proposed branch budget bill.
Budget unit – Any subdivision of any branch of government, however designated in any branch budget bill.
Budget unit request – A detailed statement of the financial requirements of a budget unit by principal budget class, and an estimate of its receipts and expenditures for the next two fiscal years.
Fiscal year – The state fiscal year begins on July 1 and ends on June 30. Budgets are enacted for a two-year period that span across two fiscal years and three calendar years.
Interim – The period between sessions of a legislative session.
Interim Joint Committee – A committee composed of all members of a Senate standing committee and all members of a House standing committee, which meets during the interim.
Line item – An appropriation designated for a specific purpose in a budget.
Lobby – To conduct activities aimed at influencing public officials and especially members of a legislative body on legislation.
Veto – To refuse approval of a legislative bill to prevent enactment or cause reconsideration.
Key Players
Branch Heads – The Governor, Chief Justice and the Legislative Research Commission are the heads of their respective branches of government and are responsible for submitting a branch budget recommendation to the General Assembly.
Kentuckians – Kentuckians vote legislators into office and pay the taxes that fund a good portion of the budget. Advocates can also influence the budget process by speaking out publicly, reaching out to legislators at home and lobbying.
Consensus Forecasting Group (CFG) – An independent group of individuals jointly selected by the state budget director and Legislative Research Commission who are knowledgeable about the state and national economy and financial conditions of the commonwealth. The Consensus Forecasting Group develops the official revenue forecasts for the current and following two fiscal years, that are used in developing the budget.
Executive Branch Cabinets, Departments & Offices – State agencies identify budget needs within different areas of government and present budget requests to the Legislative Research Commission and the Governor, who works with Office of State Budget Director to develop the Executive Branch Budget proposal.
Finance Administration Cabinet (FAC) – The Finance and Administration Cabinet is the primary support agency for state government. The Cabinet serves state agencies, local governments, businesses and vendors, and individuals.
The General Assembly – Comprised of 38 Senators and 100 House Representatives, the legislature is exclusively authorized by the state constitution to tax and spend, and has the primary responsibility for passing the budget and the power to override the governor’s budget vetoes.
The Governor – The Governor presents the executive budget proposal and has the authority to veto particular line items in the budget bills passed by the legislature.
Judicial Branch Cabinets, Departments & Offices – State agencies identify budget needs within different areas of government and present budget requests to the Chief Justice to develop the Judicial Branch Budget proposal.
Legislative Research Commission (LRC) – A legislative committee, comprised of the majority and minority leadership of both the Senate and the House provides research, technical and administrative support to the General Assembly.
Office of the State Budget Director (OSBD) – Provides analysis of policy, economic and budget issues facing the state; it also supports and manages the budget process for the executive branch.
Senate and House Appropriations & Revenue Committees – These committees, including budget review subcommittees, develop House and Senate budget proposals for consideration by the full General Assembly.
