Kentucky Together — a coalition including the Kentucky Center for Economic Policy, Kentuckians for the Commonwealth, United Campus Workers and others — say the budget reserve trust fund, often called the rainy day fund, is far in excess of what the state needs to protect against future economic downturns.
The coalition is made up of groups with diverse interests that would like to see more state spending on childcare, social workers, teacher wages, mental health advocacy, disaster relief, conservation efforts and affordable housing.
“The state could use billions to deliver for Kentuckians and still have plenty set aside to be prepared for future economic downturns,” said Natalie Cunningham, the outreach director for the Kentucky Center for Economic Policy at a press conference Tuesday. “The only reason to hoard more money is to keep cutting or aim to eliminate the individual income tax, which devastates the budget.”
Right now, the state is sitting on a record $3.7 billion in its budget reserve trust fund. Republican lawmakers in control of both chambers have kept those reserves set aside in part as a precondition to lowering the state’s income tax, which dropped to 4% this month.
That legislation, passed in 2022, allows for near-automatic reductions in the state’s income tax if certain conditions are met including keeping budget reserves above 10% of General Fund revenues.
Republican House Speaker David Osborne from Prospect said Tuesday he would be willing to tap into the budget reserve this session, but only to continue paying into the pension system, saying those payments wouldn’t affect future tax cuts.
“It would be appropriate to assume that there will be significant additional contributions into the pension system, which is certainly not a real sexy thing,” Osborne said. “I often liken that to pumping out a septic tank. You know, it's something that has to be done. But it's hard to derive any great pleasure from it.”
Cunningham and the other representatives for Kentucky Together said the tax cuts would disproportionately benefit wealthy Kentuckians and would devastate the state's largest source of revenue.
“The budget is a moral document and the strongest tool we have together to build an economy where everyone has a chance to thrive,” Cunningham said. “We've heard many, many times that we just don't have the money to meet our needs. And for the first time, we know that that excuse is no longer valid.”
The Center predicted that if the legislature passed a continuation budget, which would provide the same level of services, the fund would reach $5 billion by the summer of 2025. That would be double the mark Cunningham said is necessary to safeguard the state’s finances.
Wesley Bryant, a member of Kentuckians for the Commonwealth, said he is still recovering from the record-breaking floods that devastated parts of eastern Kentucky. He said the state should dip further into its reserves to help him and other families in the wake of disasters.
Bryant called for additional state dollars toward housing, recovery and mental health. Since August 2022, the state has paid $157 million for debris cleanup that many residents argued was largely left incomplete, according to recent stories by the Kentucky Center for Investigative Reporting.
“What are we saving the rainy day fund for exactly? We had 10 inches of rain in one day, the biggest flood we've ever experienced,” Bryant said. “What is the rainy day fund for if not the rainiest day we've ever had?”
Democratic Gov. Andy Beshear released his own budget proposal last month, which did not touch the rainy day fund. Executive Director of KyPolicy Jason Bailey said that while the governor’s budget did not reduce the amount in the fund, it also did not continue to contribute to its massive growth.
“It's in the right direction. At least it’s not trying to continue to pile up money and aim at triggering more income tax cuts that we know will permanently deplete the resources we need,” Bailey said.
Some of the organizers said Beshear’s budget doesn’t go far enough to address some of the state’s most pressing crises. Andrea Zang, a tenant organizer in Lexington, said the state needs to make meaningful investments into affordable housing.
Beshear’s plan provides $10 million for affordable housing initiatives, but Zang called for hundreds of millions.
“I talked to dozens of tenants every week who are fighting rent hikes every paycheck, who came to Lexington because there wasn't safe, affordable housing where they lived, and whose health is worsening every day because of uninhabitable conditions,” Zang said.
Republicans in control of the legislature have yet to unveil their budget proposal but are expected to do so soon. Senate President Robert Stivers, a Republican from Manchester, said the trust fund should be used for emergencies or one-time expenses — not factored into issues that would require recurring payments, like teacher raises.
This story has been updated.
