- Kentucky heads into the 2026 session with FY 2025-26 General Fund revenue projected at about $15.5B, triggering budget-cut protocols despite a smaller-than-expected shortfall.
- Gov. Andy Beshear’s 2026-28 budget would tap nearly $1B from the $3.7B rainy-day fund to cover gaps and sustain services.
- Federal funding shifts, including higher state SNAP administrative costs and potential penalties, are adding major pressure alongside Medicaid and senior-nutrition needs.
- Republicans want more income-tax cuts but some trigger requirements were missed, sharpening the fight over whether to prioritize tax relief or program funding.
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Kentucky is navigating one of its more challenging budget cycles in recent years. With the biennial 2026-2028 budget process beginning in January, lawmakers must reconcile prior tax cuts, fading federal pandemic stimulus, and looming new federal mandates that shift costs onto the state. The General Fund is forecasted to bring in around $15.5 billion for FY 2025-26, which is down from the prior year’s $15.7 billion; though recent months have dutifully narrowed the expected shortfall from $305 million to $156 million, the forecast still triggers mandatory budget reduction protocols under state law.
Governor Andy Beshear’s proposal to use nearly $1 billion of the approximately $3.7 billion in the Budget Reserve Trust Fund underscores the severity of fiscal pressures. However, using reserves comes with trade-offs: it can smooth near-term volatility but can limit flexibility in responding to future unexpected revenue drops or emergencies.
Compounding tighter revenues, recent federal policy changes such as those introduced in the OBBBA are forcing Kentucky to shoulder more administrative expenses for SNAP, with estimated state costs increasing by $241 million to $254 million in 2027-28 if error rates exceed thresholds. Programs that expanded during the pandemic, like senior meals and SNAP supports, are now facing retrenchment as federal funding tapers off and state coffers strain.
On the political front, Republicans in both chambers are seeking further tax cuts and reforms, viewing those as essential for economic competitiveness and voter appeal. But the state’s tax-cut framework includes “triggers” rooted in revenue growth and rainy-day fund balances—some of which were narrowly missed. Democratic stakeholders are pushing instead for prioritization of investment in public education, health, and social services to mitigate cost-of-living pressures.
Strategic implications are wide: how Kentucky balances reserve use vs. ongoing service levels will influence both its credit rating and long-term fiscal health; the outcomes will also affect vulnerable populations, especially seniors, SNAP recipients, and students. Open questions include whether lawmakers will restore, maintain, or further cut SNAP asset thresholds and income tax rates; how state costs from federal mandates are funded; and whether the budget will shift more pain onto local governments or service providers.
Supporting Notes
- Kentucky’s General Fund revenue is projected at about $15.5 billion for FY 2025-26—down from $15.7 billion the prior year but improved by ~$150 million over earlier shortfall estimates.
- The projected revenue shortfall was reduced from $305 million to approximately $156 million via recent economic data.
- Beshear’s budget proposal draws nearly $1 billion from the Budget Reserve Trust Fund, which currently holds ~$3.7 billion.
- Under the OBBBA, Kentucky faces increased state costs for SNAP administration and potential penalties if error rates exceed 6%; projected state cost increases of $241–$254 million in 2027-28.
- Senior nutrition programs serving thousands may face cutbacks: over 5,000 seniors could be waitlisted, and 1,600 lose session-based services, as funding reverts to pre-COVID levels because of the shortfall (≈ $300 million) driven by tariffs and earlier tax cuts.
- Income tax cuts are a priority for Republicans—with another half-percent cut taking effect Jan. 1, 2026—but some tax-cut triggers requiring revenue exceeding prior growth and fund balances were narrowly missed ($7.5 million shortfall).