LEXINGTON, Ky. — Republican leaders in the Kentucky legislature cautioned that the state faces major challenges in crafting its next two-year budget, citing federal funding cuts and increased costs being shifted to states for health care and food assistance programs.
Speaking at the Kentucky Chamber of Commerce’s legislative preview conference on Monday, lawmakers discussed the upcoming 2026 session, where they will build a $100 billion state budget funding public schools, state agencies, and portions of federal programs like Medicaid and SNAP (Supplemental Nutrition Assistance Program).
Federal Cost Shifts Raise Alarm
Under the One Big Beautiful Bill Act, passed this summer, Congress shifted more administrative and funding responsibilities for SNAP and Medicaid to the states. The law also ties SNAP cost-sharing rates to states’ error rates in determining benefits.
Kentucky House Speaker David Osborne (R-Prospect) said these changes will make the next budget process particularly difficult.
“I think this budget is going to present some unique challenges because there really are disparate ideas on how we approach this budget,” Osborne said.
Sen. Chris McDaniel (R-Ryland Heights), chair of the Senate Appropriations and Revenue Committee, estimated the new SNAP requirements will cost the state an additional $180 million immediately, with further expenses expected from Medicaid changes.
The Congressional Budget Office projected the federal law would cut $911 billion in Medicaid spending over the next decade, increasing the number of uninsured Americans by about 10 million.
McDaniel made it clear the legislature does not intend to replace lost federal funds.
“Rethink your strategy,” he said. “The state is not going to backfill federal programs that get changed. We simply do not have the bandwidth or the financial wherewithal to do so.”
Concerns Over Health Care and Education
Lawmakers also voiced concerns over the impact on hospitals and education funding.
Sen. Stephen Meredith (R-Leitchfield), chair of the Senate Health Services Committee, cited a Kentucky Hospital Association estimate that 35 hospitals could close due to reduced provider tax funding. He expressed hope that Congress would amend the new law.
“We can’t let 35 hospitals close. So something will happen,” said Meredith, a former hospital CEO.
Meanwhile, Rep. James Tipton (R-Taylorsville), chair of the House Postsecondary Education Committee, said lawmakers must prepare for potential education funding cuts, noting that both the White House and House Republicans have proposed significant reductions to K–12 education budgets.
State Revenue Concerns and Income Tax Debate
Adding to the challenge, Kentucky faces a projected $300 million revenue shortfall for the current fiscal year, according to the Consensus Forecasting Group, due to factors such as tariff uncertainty and lower income tax receipts.
The group will revisit its forecast in December to help lawmakers plan for the next budget.
A key debate will center on the state’s income tax rate, which Republican leaders and the Kentucky Chamber of Commerce want to eventually eliminate. The 2022 tax reform law requires the state to meet certain fiscal triggers before lowering the tax rate by half a percentage point.
Although the state failed to meet those triggers this year, House Majority Whip Jason Nemes (R-Louisville) argued the calculation was premature and that revenues would have qualified for another reduction in 2027.
Osborne acknowledged differences in opinion but hinted at flexibility.
“We can make policy however we want to make it,” he said. “There’s going to be conversations around this budget we haven’t had in the last several years — not necessarily disagreements or fights, but just different philosophies.”
Lawmakers agreed the upcoming 2026 session will likely bring one of the most complex and consequential budget negotiations Kentucky has seen in years.
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