After a four-hour floor debate Thursday, the Kentucky House passed its version of the budget.

In Kentucky, budgets cover a biennium, or a two year period.

Members voted on separate bills for the executive, legislative and judicial branches, as well as a separate bill for one-time expenses.

Nobody was able to file floor amendments.

In order to file an amendment, a lawmaker must file an amendment over 24 hours before the bill is heard on the floor. However, the current version of the bill was not available until about 3 p.m. Wednesday at a surprise budget meeting, when the floor vote was 2 p.m. Thursday.

Several Democrats tried to suspend the rules to have their amendments heard, but all failed.

Where does it go from here?

The House budget is not the final version of the budget.

Next, it will go to the Senate, where the appropriations and revenue committee will make whatever changes it likes.

Then, after a majority of state senators approve a version of the Senate bill, it will go to a conference committee—a meeting of leadership from both parties and chambers—to iron out the differences.

After the conference committee, a majority of both chambers must approve the budget before it goes to the governor’s desk.

Gov. Andy Beshear then has ten days to line-item veto parts he doesn’t like, and return it to the legislature, which will vote to potentially override his vetoes.

What’s in the House budget?

Rep. Jason Petrie, R-Elkton, said that House Bill 6, the executive branch budget, was “by design, a bare, basic budgeting and planning.”

HB6 is the main budget bill; it includes the operating costs of each of the state’s agencies, departments and commissions, as well as capital projects.

The original version of the bill dedicated $99.8 billion to operating costs and $25.8 billion for capital projects. The money comes from a combination of state and federal funds.

After COVID, Kentucky has a huge surplus. Currently, the state has a record $3.7 billion in its Budget Reserve Trust Fund, commonly referred to as the “rainy day fund.”

HB6 would add $3.3 billion more to the reserve fund.

House Bill 1 is a separate budget bill dedicated to one-time expenses. HB1 would spend $1.8 billion of the rainy day fund, leaving its balance at about $5.2 billion by the end of the biennium.

Although it uses state funds, the bill states that the $1.8 billion would not be counted as part of the formula used to decide whether or not the state can cut the income tax another half percent.

Republicans have repeatedly said that they did not design this budget with income tax cuts in mind, but Democrats disagree.

Petrie told reporters that the current 2024 budget looks like it would meet the requirements for a cut, but that 2025 will be close and increased Medicaid costs in 2026 make a further cut in that year unlikely.

Rep. Josie Raymond, D-Louisville, was not impressed with the amount of money remaining in the budget reserve trust fund after all spending. She said that the amount of money in the fund is nearly double the best practice standard—15% of revenues or about 45-days worth of operating costs.

She compared it to a family who realizes that after paying all their bills, they still have extra money in excess of their three-month emergency fund.

“You might look to see if your kids need new clothes or if your gutter is falling off your house or if your washing machine is on its last leg,” Raymond said. “Our state is making a financial blunder by stockpiling billions of dollars when Kentuckians still have needs.”

Raymond cited a statewide housing crisis, lack of access to clean water for all Kentuckians and the teacher shortage as key needs the extra funds could be used to address.

Education

Much of the floor discussion revolved around education funding.

The committee substitute, the newest version of the bill, increases funding for student transportation, a key point of Democratic opposition in the original bill.

It funds student transportation at 80% the first year of the biennium, and 100% the second.

Rep. Cherylnn Stevenson, D-Lexington, said that the last time student transportation was fully funded was 2004. She added that the state is legally required to fund 100% of transportation, but has ignored that for decades.

Transportation is included in the Support Education Excellence in Kentucky (SEEK) fund. The House budget dedicates $6.4 billion toward the fund across the biennium.

School districts receive SEEK funds largely based on average attendance numbers. The House budget increases the per-pupil base rate from $4,200 to $4,368 in FY25 to $4,455 in FY26.

The budget also requires school districts to report test scores on their website, and the Kentucky Department of Education would have to post a ranking on its website.

It acknowledges that other states are increasing teacher salaries, and directs local boards of education to consider those actions, the local economy, “and the related effect on recruitment and retention” when considering salaries for school employees.

A failure to report test scores or “make adequate progress in the recruitment and retention of classroom teachers and classified employees” may lead to school closures, board of education takeovers and potential consolidation of boards, the budget states.

Rep. Chad Aull, D-Lexington, cited a study that found that 96% of Kentucky superintendents said that the increased SEEK funding would not be enough to recruit and retain teachers.

Rep. Tina Bojanowski added that there is a strong correlation between students in poverty and low scores on standardized tests, which could make a public ranking problematic.

“We currently use standardized tests well beyond what they were designed to do, which is to measure a few areas of academic achievement,” she said. “Achievement tests were not designed for the purposes of promoting or grading students, evaluating teachers or evaluating schools.”

Retirement and pension funds

Kentucky state retirees have not gotten a cost of living adjustment since July 2011.

Gov. Andy Beshear’s proposed budget would have offered retirees a one-time “13th check” in place of a recurring COLA. The House budget does neither.

Aull said that choice does not take inflation into account.

However, the House’s one-time expenses budget bill does pay down $950 million worth of unfunded pension liabilities for the state police, teacher and state employee retirement systems.

Petrie said that would fund 60% of the teacher and state police retirement systems. It would only fund 24% of the state employee retirement system, but Petrie said that is a significant improvement from the previous 12%.

Emergency funding cap

The House also voted on House Bill 262, which limits the amount of funds immediately available in case of a disaster or emergency.

The executive branch would be able to use $75 million, and thereafter, the legislature would need to call a special session to potentially allocate more for emergency aid.

Before, the executive branch was given “the necessary funds” required to match federal aid.

“In a time when natural disasters and emergencies are increasing due to climate change, it is deeply concerning that we are considering eliminating the governor’s authority to lead in these situations, given how well he has responded in the past to the natural disasters in our state,” Aull said.

The bill passed the House 80-15, largely on party lines.

The House budget also does not include the requested $10 million for the Affordable Housing Trust Fund.

While the entire Commonwealth is experiencing an affordable housing crisis, Eastern Kentucky has been particularly impacted after the 2022 floods.

Late last year, Housing Development Alliance executive director Scott McReynolds said that over 500 families needed housing before the floods.

After, he estimates that about 3,000 housing units need to be replaced, in an area where many live below the poverty line.

An analysis from the Ohio River Valley Institute and the Appalachian Citizens Law Center, based on FEMA data and interviews with flood survivors, found that the low end of housing recovery would cost $450 million.

Petrie told reporters that housing nonprofits plan to use the Government Resources Accelerating Needed Transformation Program, a grant established last session, to come up with matching funds for federal grants to meet their needs.

The one-time expenses House budget bill adds $450 million over the biennium to support the GRANT program.

“Just throwing another piece on there didn’t seem like it was the best use of our money,” Petrie said.