The Senate’s version of the next two-year state budget eases some of the cuts included in the House budget, which passed in late February, by spending funds the House allocated to the already-large Budget Reserve Trust Fund (BRTF). The budget also contains some new appropriations, including funding for a so-called 13th check for state retirees who have not received a cost-of-living adjustment since 2011. The budget does not aim to trigger additional income tax cuts under the legislature’s formula over the next two years by substantially underspending relative to revenue.
However, the Senate budget continues to include cuts of 4% in 2027 and 3% more in 2028 to many state services. Its funding levels for Medicaid and the Department of Community Based Services will result in a significant loss of services. It also includes only modest funding for several areas, including lower K-12 SEEK education funding than was included in the already-lean House budget. The austerity of the budget reflects the impact of recent state income tax cuts.
House’s 7% budget cuts remain, though a few more agencies are exempt
Like in the House budget, the Senate cuts the base budgets of most state agencies by 4% in 2027 and 7% in 2028. However, it slightly increases the number of agencies that are exempt from those cuts. Both budgets exempt Veterans Affairs, County costs, Behavioral Health, Family Resource and Youth Service Centers, Juvenile Justice, Corrections, Community services and local facilities, Appropriations Not Otherwise Classified and Judgements and Pension contributions. The Senate adds exemptions from cuts for certain budget areas including Postsecondary Institutions, Kentucky Educational Television, the Department of Revenue, State Police and the Department of Public Advocacy.
Plan includes smaller SEEK base increase than in the House budget, freezes funding for school buses and provides no educator raise or preschool increase
The Senate proposal increases the SEEK base per-pupil guarantee from its 2026 level of $4,586 per-student to $4,626 for 2027, less than 1% increase, and $4,774 for 2028, a 3.2% increase. The 2028 number is slightly less than the $4,792 proposed in the House budget. Like in the House, SEEK transportation contributions are frozen at the 2026 level of $399 million for 2027 and 2028, or $93 million below what the law requires. The Tier 1 level funding under SEEK is matched at the slightly higher 17.5% level used in the last budget. Total SEEK funding will remain flat at 25% below 2008 levels after adjusting for inflation.
No additional funds are provided for teacher and school employee raises, and the budget does not allow teachers to keep 3.75% of their salary that had been going to pay off the liability in their medical insurance plan.
The budget does not increase funding for preschool and extended school services, which remain at their 2019 level through 2028. Also frozen is funding for Family Resource and Youth Service Centers, the Center for School Safety and school-based mental health service providers (for which funding was not specifically earmarked in the House budget). Funding for School Resource Officers is increased from $18 million a year currently to $23 million (three times more than the $7.4 million put into school-based mental health providers).
The funding for some Learning and Results Services (LARS) programs is only conditionally appropriated for 2028 and will require subsequent authorization by the General Assembly. The funds are to be allocated to school districts starting in 2028 based on a student population formula developed by the Department of Education to be spent on any LARS programs based on the discretion of the district.
The budget also includes $14.8 million more in 2028 for Career and Technical Education. It includes $7.5 million in 2028 for a “school of innovation pilot project” for three schools, at least two of which are in Jefferson County and Covington Independent, to be operated with a charter-like management model aligned with SB 263 that has passed the Senate. The budget also includes $2.25 million each year for the principal leadership development program proposed under SB 4, which has also passed the Senate.
Budget provides more than House for higher education institutions
Unlike in the House budget, the Senate budget shields higher education from the cuts of 7% over the biennium. It also includes $120 million in performance funding for 2027 and $130 million in 2028, slightly more than the House’s $115 million each year. However, total funding for postsecondary institutions is down 8.3% over the biennium compared to 2026 and down 38% compared to 2008 levels by 2028 once inflation is taken into account.
Funding for college financial aid programs through the Kentucky Higher Education Assistance Authority is very similar to the House budget and $26 million less than the governor had recommended in his budget. The governor had noted that his appropriations levels would result in first-come, first-served funding or cuts in grant levels.
Serious shortfalls continue to exist with Medicaid and Community Based Services
The Senate funds Medicaid with different assumptions and appropriates fewer General Fund dollars. Counting use of the timing of payments planned in the governor’s budget and the use of restricted dollars drawn from a state insurance fund, the Senate budget includes $269 million less in 2027 and $420 million less in 2028 in General Fund appropriations to Medicaid. Counting the lost federal dollars that would result, that creates a shortfall of over $2 billion in the program. Those funding levels would cause a significant reduction in payments to hospitals and clinics and a loss of benefits, as well as another hit on the health care economy already being hampered by H. R. 1.
The budget includes the requested $8.1 million in 2027 and $1.5 million in 2028 for technology changes needed to implement new work reporting requirements mandated by H. R. 1. It includes funding for 450 new slots in Medicaid waiver programs for people with special care needs, the same increase as in the House plan. The Senate budget requires a cut of 2.5% in payments to managed care organizations under Medicaid and directs any savings to increase reimbursements rates for fee-for-service Medicaid providers. And it includes the additional $43.5 million in 2027 and $58 million in 2028 to cover the increased administrative costs of the SNAP food assistance program required by H. R. 1.
The Senate budget increases funding for the Department of Community Based Services by $28 million each year compared to the House budget, which makes deep reductions, but still underfunds it by $48 million over the biennium compared to the governor’s proposal. The Senate budget includes funding not identified in the House budget to support continued child care benefits for child care workers and to help prevent a benefit cliff for those leaving the Child Care Assistance Program. However the budget does not indicate the inclusion of funding for the higher reimbursement rates that have been helping keep child care centers open.
The Senate budget includes $5 million each year (of $14.6 million a year to fully fund SB 151) to provide funding for relative and fictive kin caregivers that was not specifically allocated in the House budget, and appears to mandate $22 million each year to support existing foster care and kinship care programs for kids with difficulty finding placements. The budget does not mention replacing funds that have been diverted from the Temporary Assistance to Needy Families program this year to address the shortfall in out-of-home care services for youth.
Funding is cut for the Department of Aging and Independent Living (DAIL) by $19 million over the biennium compared to the governor’s budget, but the budget mandates that the department spend that amount over the biennium on senior meals. The House version also cut this amount to DAIL’s budget but did not mandate the funding of senior meals.
The budget increases General Fund appropriations by $20 million each year to support increased costs related to staffing and patient load at state-run psychiatric and other facilities. The budget funds the high-acuity juvenile facility and one of the proposed female juvenile facilities included in SB 125, neither of which were in the House budget. The budget includes $13 million each year to provide $4 more per day for state inmates housed in local jails, a partial response to the pressure from local governments to increase payments.. The budget includes $16 million more each year to pay sheriffs and law enforcement officers for court security., and $2 million each year to increase juror pay from $12.50 to $25 per day.
Budget does not include cap on health insurance contributions, contains cost-of-living payment for retirees
The budget does not language in the original House version of HB 500 that capped employer contributions for health insurance. The Senate provides for a 2% raise for state employees in 2027 and another 2% in 2028. It takes $67 million that had been appropriated in 2022 to address pay compression for state employees in recognition of many years without raises and applies it to the unfunded pension liability of the Kentucky Employees Retirement System nonhazardous pension fund. The House had proposed releasing $27 million of that money for a pilot program for Cabinet for Health and Family Services and Transportation Cabinet employees, but the House does not include that program.
As in the House and the governor’s plan, the Senate budget transfers $350 million from the Kentucky Insurance Regulatory Trust, which is funded by insurance agent license fees and other sources. The House had used those funds to increase the BRTF and potentially shore up Medicaid. But the Senate uses $80.3 million from that transfer for a 13th-check for state retirees to address the erosion of their pension benefits. The payment is equal to one month’s check for those who retired prior to 2016, 50% of a month for those retired between 2016 and 2021, and 25% for those who retired between 2021 and 2026. It then applies the remaining $269.7 million to the unfunded liability of the Kentucky Employees Retirement System nonhazardous insurance fund. As in the House plan, the proposal also makes a payment of $78.5 million from the Permanent Pension Fund to the unfunded liability in the Kentucky Employees Retirement System nonhazardous pension fund.
Plan not aimed at more income tax cuts, adds slightly to the large Budget Reserve Trust Fund
The Senate budget is not aimed at triggering more income tax cuts over the biennium, as it appropriates funds approximately equal to the amount of revenue the state will receive. It does add $55.9 million in 2027 to the BRTF, which has a current balance of $3.7 billion. Exactly like the House, the Senate passed a bare-bones version of HB 900 that lawmakers indicate will include line-item expenditures from the BRTF of $810 million, but the current version does not outline that spending. That will leave the BRTF balance at approximately $3 billion, or 19% of General Fund revenues.
Updated March 19, 2026.
