A new version of Republicans’ two-year budget bill outlining $31 billion of state spending cleared a Kentucky House committee Wednesday evening, before the 227-page bill had been posted online for the public to read.
House Bill 500 was 152 pages when first filed in January by House GOP budget committee chairman Rep. Jason Petrie of Elkton. He described it at the time as a “bare bones” budget that would add more spending details after additional testimony in budget subcommittee hearings.
Those new changes came in a substitute version of the bill that cleared the House budget committee Wednesday, roughly 24 hours after it was shared with lawmakers on that committee. A copy of the updated bill was posted online after the meeting.
Petrie’s updated bill added more funds to Medicaid and K-12 public schools. But it’s projected to still leave roughly $600 million in projected revenue unspent, which would grow the state’s $3.7 billion budget reserve trust fund — often called the “rainy day fund” — even larger.
The GOP budget chairman opened the meeting by quickly running down a list of changes and features of the bill for more than 20 minutes, before fielding questions from two Democratic members of the committee. It passed with only Republican members voting in favor, and it could pass the full House chamber as early as Thursday.
Petrie accepted a single question from reporters following the committee hearing about a bill that in many ways determines the functioning of the state government over the next two fiscal years. He left the room afterwards, with his media liaison saying a press release would be forthcoming.
Moments before, in the committee meeting, Petrie said he welcomes questions from his fellow lawmakers.
“I always learn that way. I love the input,” he said. “I love figuring it out, so don’t be strangers.”
One of the largest changes to the new bill is that it no longer includes language capping health insurance costs for public and school employees, which critics had said would lead to skyrocketing premiums for them. Republican lawmakers issued a subpoena to the administration of Democratic Gov. Andy Beshear earlier in the week, arguing that they were withholding key data needed to construct a budget for the public health plans.
Originally, HB 500 would have kept the state’s K-12 education funding formula frozen solid at the current level of $4,586 per pupil for the next two years, with no increase for inflation. But the updated version would increase that per-student allotment by 2.7% on average over the two years — less than the 3.8% average increase under Beshear’s proposed budget. By the 2028 fiscal year, Kentucky schools would be guaranteed $4,792 for each student.
The Republican budget did not include Beshear’s long-ignored requests for a significantly expanded state pre-K program and universal teacher raises.
Though HB 500 would increase the K-12 per-pupil funding formula, the left-leaning think tank Kentucky Center for Economic Policy says this would still be 25% below the funding level in 2008, when adjusting for inflation.
Funds added to Medicaid, but Democrats want more
Funding for Medicaid, one of the largest portions of the budget, has increased significantly since that first bare-bones budget, but some advocates say it still falls short of what the Department of Medicaid Services needs to maintain benefits.
Both the revised GOP budget and Beshear’s proposal add more slots for Medicaid waiver programs that allow people with special needs to remain in their home instead of being institutionalized. They are needed to address lengthy waitlists, which Republicans have identified as a significant problem.
The new draft of the budget seeks to add 450 new waiver slots, compared to the 1,250 slots Beshear called for. Neither plan would fully assist the thousands of individuals stuck on the expanding waitlist.
According to the Kentucky Center for Economic Policy, the updated budget leaves a $219.6 million shortfall compared to the official Medicaid budget request, after removing waiver slot differences. That’s even after including the $250 million the bill sets aside in the rainy day fund to cover any potential Medicaid benefit payments if budgeted funds run out.
Democratic Rep. Lindsey Burke from Lexington said she was grateful for many of the changes in the bill, but still had concerns about the gap in Medicaid funding. Petrie said they decided to keep Medicaid funding flat, assuming lower eligibility.
“If you look at the trajectory of eligibles inside Medicaid that receive benefits — in light of changes at the federal level and at the state level, and just general trends post-COVID — we are seeing a considerable trend decline,” Petrie said. “It's hard to fathom that we would need an extra $200 million or more to continue to fund something that has gone down by 15 or more percent in just a matter of a short amount of time.”
Administrators of the state Medicaid program told a budget subcommittee in January that the work requirements and other federal changes spurred by the “One Big Beautiful Bill” passed by Congress last year may lower enrollment totals. But they added that Kentuckians who are the sickest and most expensive to cover will stay enrolled, and costs will likely still increase.
A growing budget reserve trust fund
If state tax revenue and spending clocks in at the levels projected in HB 500 over the next two fiscal years, the bill would leave $612 million unspent that would go into the $3.7 billion rainy day fund. The budget also directs $350 million from the Department of Insurance to the budget reserve trust fund, with $250 million of that set aside to potentially cover Medicaid benefit payments.
Asked about the $250 million set aside for Medicaid in the hearing, Petrie said it was a “pressure valve … just in case Medicaid was higher than what we thought it was supposed to be.”
Petrie added that in a typical year there are $100 million to $200 million in “necessary government expenditures” that have to come out of the budget reserve trust fund.
Jason Bailey, the executive director of the Kentucky Center for Economic Policy, said Republicans were intentionally keeping spending much lower than revenue and inflating the budget reserve trust fund in order to increase the odds that budget triggers are met to create income tax cuts in future years.
Bailey said lawmakers should “choose Kentuckians over budget cuts and tax cuts for the powerful few, and pass a budget that moves us all forward.”
Under Republicans' tax-cut mechanism created in 2022, Kentucky’s individual income tax rate decreases by a half point each year until it is eventually eliminated, so long as state spending, tax revenue and the budget reserve trust fund hit certain levels. Kentucky has missed one of the triggers in two out of the past three years, including narrowly this past summer, due to state spending being too high.
Andrew McNeill, the president of right-leaning think tank Kentucky Forum for Rights, Economics & Education, said in a press release that the House “took an important next step today with a budget that refrains from spending every available dollar and doesn't rely on reserves to cover ongoing expenses.”
"Taxpayers are right to demand that Frankfort operate within its means and adopt fiscally responsible spending plans,” said McNeill, though he added that the budget also “contains an excessive number of earmarks directed towards numerous nonprofit organizations and government programs that have gone without meaningful review for years.”
Budget bill could clear House on Thursday
Democratic lawmakers filed many floor amendments to HB 500 in the House this week but are unlikely to have any of them receive a vote due to a fast-tracking mechanism employed by Republicans. Democrats on Wednesday attempted their own maneuver to allow their floor amendments to be considered when the bill receives its likely floor vote on Thursday, but it failed in a party-line vote.
Kentucky Public Radio asked House Speaker David Osborne on Tuesday if Republicans use late committee substitutes to block Democratic amendments from reaching floor votes.
“They’ve already filed a bunch of floor amendments. Each of them was given due consideration when the substitute was put together,” Osborne said.
