House Files Initial Budget Bill as Starting Point in State Budget Process

House budget leaders filed House Bill 500 this week, marking the first formal step in the General Assembly’s work on Kentucky’s next two-year state budget.

HB 500, filed by House Appropriations and Revenue Committee Chair Jason Petrie, establishes an initial budget framework that will serve as the basis for further review and revision as the legislative process continues.

Overview of the Budget Framework

According to House budget leaders, House Bill 500 reflects an emphasis on fiscal discipline and a shift in how the budget is evaluated at the start of the process.

The bill sets base funding levels and relies on the House’s budget review subcommittee process to inform changes as lawmakers continue their work. Legislative leaders said the approach clarifies baseline spending levels and defers decisions on additional funding to later stages of the budget process.

As filed, HB 500 includes $14.9 billion in annual base-level spending, while the broader General Fund base totals approximately $15.5 to $16 billion per year. The bill does not restate funding that is already included in the base budget, and programs that are not explicitly listed may still be funded through existing appropriations.

For most state agencies, the bill applies a 4% reduction in fiscal year 2027 and an additional 3% reduction in fiscal year 2028, while exempting a range of core state functions from those reductions.

Exempted and Protected Areas

HB 500 exempts several major areas of state government from the agency reductions, including education, health and human services, public safety, and other core obligations.

Exemptions include key components of K–12 education, including SEEK per-pupil funding maintained at $4,586, SEEK transportation funding aligned with the FY 2025 appropriation level of $358.9 million, school safety funding, mental health professionals, career and technical education, Family Resource and Youth Services Centers, and School Facilities Construction Commission operations. Postsecondary education funding through the Postsecondary Performance Fund is also exempt and remains at $115 million in each fiscal year.

In health and public safety, exemptions include behavioral health services and developmental and intellectual disability programs within the Cabinet for Health and Family Services, including state-owned, state-operated, and contracted residential facilities. Justice and public safety exemptions include juvenile justice, Department of Corrections community services and local facilities, adult correctional institutions, and local jail support. The bill also exempts veterans’ services, all debt service obligations, and county-related costs, including sheriffs’ fees.

HB 500 also includes funding for full actuarial public pension contributions across all plans, including on-behalf contributions for school districts.

Additional provisions address employer health insurance costs, capping annual growth at 5% year over year, provide a 2% salary increase for state employees each fiscal year, increase training stipends by 2% annually, and fund stipends for KLEFPF and Fish and Wildlife officers.

The capital budget portion of HB 500 focuses on maintenance of state facilities and capital support for higher education.

Budget Process Moving Forward

HB 500 is limited to operational spending. One-time appropriations are expected to be addressed through separate legislation to help distinguish recurring operating costs from temporary or project-based funding.

HB 500 will be assigned to committee in the coming days as House budget review subcommittees continue examining agency budget requests and developing revisions through a committee substitute. Once the House completes its version of the budget, it will move to the Senate for consideration. Any differences between the two chambers’ versions will be resolved through a conference committee before final passage.

Stay tuned to The Bottom Line for updates as the budget moves through the legislative process.