Kentucky House Speaker David Osborne and Senate President Robert Stivers spoke to county leaders Thursday at the Kentucky County Judge/Executive Association Winter Conference. Moderated by Harlan County Judge/Executive Dan Mosley, topics of discussion included transportation and jail funding, bills filed during the 2025 legislative session and the potential impact of the new Trump administration.
This transcript of Osborne and Stivers’ remarks has been edited for length and clarity.
Judge Mosley
First off, congratulations on continuing to responsibly move Kentucky toward a lower state income tax rate. We know that's been a goal for both of you all and both of your chambers. Could you both speak to the impact that it's already had and what your ultimate goal is, and how to get it to zero, and how feasible that looks.
President Stivers
This is something we've had really good dialogue on. Many of the judges on the Tennessee border, Judge Gorman down here, my own judge here from Whitley County, Judge White, understand the competitive nature of having a tax code that competes with Tennessee. And people who are on the Illinois, Ohio and Indiana border understand that as well, because people look to – and especially where people are so transitory – to live in the environments that are best for their pocketbooks.
And I want to say this. A lot of people have been naysayers about, oh, we're going to lose revenue. We're going to lose revenue. We're not going to be able to do what we need to do about providing government services. We've not missed a beat during this period of time. In fact, we're generating as much or even more monies than we have in the past. So when people talk about that, we've done it in a way, collaboratively, that it has been very positive and spurred growth in this state. And I think that's one of the main reasons you're able to see people come in here and say, we're going to come to Kentucky and locate and create jobs. Therefore, we've expanded the base. More people are here, more taxpayers are here. And it's done just exactly what we thought it would do.
Speaker Osborne
We've watched around the country, several different states that have attempted to do what we were doing, and there seems to be a right way to do things and a wrong way to do things. And I want to give ultimate credit to us doing it the right way, to Sen. Jason Petrie and Sen. Chris McDaniel, our Appropriations of Revenue chairs. For four consecutive budgets, we have spent less money than we've taken in, and that is just something that legislatures fundamentally do not do. We spend money quickly and don't always spend it wisely, but we spend it quickly, and to be able to resist the urge to do that has positioned us to make so many transformative changes across the COVID whether it be attracting a qualified workforce, whether it be creating economic development and prosperity.
And the fact of the matter is, our revenues continue to grow, and our budgets continue to grow, outpacing inflation. So, we've been able to make those investments. We've been able to stimulate our economy and we've been able to position Kentucky to take advantage of things that we've never had an opportunity to take advantage of before.
We outlawed the use of the term “rainy day fund” because our budget reserve trust fund is no longer for rainy days. It's for opportunities. If you look at House Bill 1 that we passed last year, which appropriated several billion dollars of our budget reserve trust fund, those were opportunities, opportunities to make transformative changes across the Commonwealth, leaving enough money that we still have those opportunities. And when opportunities present themselves, wherever they are, and no matter how big, no matter how small, we have the resources to take advantage of it and continue to make Kentucky more competitive. And lowering our tax rate is central to that.
Judge Mosley
Moving on to transportation funding, you all spearheaded in the 2024 session an effort related to county priority projects. This year, submissions for the 2026 projects by counties and cities across the state total over $130 million. $100 million came from counties for our roads that rated an eight, nine or 10 in the transportation world. With the $20 million allocated last year, is there a mood to look at allocating some more resources, given the fact that the demand is so high?
President Stivers
I think there is an appetite to do it. I think it's a matter of timing. We're going to have to spend this next session being somewhat reactive to what the federal government's going to do.
If they change the Medicaid match rate, for us 5% that's around $2 billion to our budget on an impact. So, do we want to [increase transportation funding]? Yeah, we even have a plan out there to do that. The question is, is it the time to do it until we know what's going to happen with the Department of Education, what we're going to happen with Medicaid? You know, that’s one of the reasons we don't call it a rainy day fund, but we have a balance there to deal with short term revenue decreases. But we don't know. So, is there the appetite? From my perspective, there is. We just think it's a timing issue.
Speaker Osborne
If you look at House Bill 1 last year, we put $500 million general fund money into the road funds. It’s the first time in modern history we've actually moved general fund money into the road fund, showing what a priority it is. And I believe that that appetite is still there.
I do agree with Robert that timing is a little difficult right now. There is some uncertainty about what we're gonna be faced with federal force downs. My gut feeling is that you will see us hold that money for 2026 in a budget session. I don't guarantee that we won't do it, because there is a real interest, and we know there's a need to do it.
Judge Mosley
Another issue that you all are keenly aware that has impacted us greatly – jails. The cost of incarceration has just continued to rise and obviously has been impacted like many other things with inflation, increased food costs, increased medical costs, all these different factors that go in, increased wages. I know it's not a budget year, obviously for you all, but every year is a budget year for fiscal courts, and we continue to find that our losses in that area are catastrophic for many counties. Can you just kind of talk about what your thoughts are on moving forward.
Speaker Osborne
We have put a lot of focus on it, and we've put a lot of money into it. We have increased reimbursement rates, probably not as much as we should, but we have increased them. You know, the very first committee meeting I went to 20 years ago when I first got elected, was a local government meeting in Louisville, and the topic was jail funding. I got to listen to Senator Julian Carroll pontificate about the history and the problems of county jails. And the same story has been repeated at least once a year for the last 20 years.
But in that period of time, we have seen the closure of almost a third of the county jails, and I think we're going to continue to see that. While we've yet to find the ultimate solution, I do believe that we're inching toward the solution. You see the planning of couple regional jails now that will replace some additional county jails, making them more efficient. It does become a matter of efficiencies, and how do we spend state dollars in the most efficient way possible to also make the counties whole of those things? It's a difficult thing to come by, but I do think we're inching toward a solution.
President Stivers
Lee, Owsley and Wolfe counties -- they did a really good job doing a regional jail -- and you might want to look at that model. The other thing is, is collaboration and cooperation among counties. Why should a county be sending their prisoners five counties away? You have transportation costs, jail time, transportation going to the jail or to courts, which are kind of cost drivers for either the jail or the sheriff's office.
The pre-adjudication detainment, I think, is one of the biggest issues, and we have some data that we're waiting for to see. This is an idea, this isn't something that we are going to do, because we will look at the data and the numbers behind it, but set up something of a regional holding facility where we have access to better healthcare opportunities for those people who are going to sit in there, especially if you get a juvenile with a serious crime that becomes really costly, or an individual who is being held on a death penalty or a capital offense for 18 months to two years before trial. Maybe regionalize some type of medical treatment, because that's where you're incurring a lot of cost. Having the person in jail is one thing. Paying medical costs really drive you outside your budget.
Judge Mosley
There was a bill filed in the House, HB 253, that would move the collection of county imposed occupational license fees to the state treasurer's office. It would require all local governments imposing the tax on payroll, gross receipts or net profits to participate, while giving businesses the option to either utilize the new system or continue to pay their tax directly to their county.
Our membership, of course, has serious reservations about the state taking the collection of a local imposed tax, the feasibility of such an undertaking and the potential cost and hazards of such a move. We're always willing to talk as stakeholders in the process, in the interim, and continue to be as responsive as we can to the needs of local businesses. We'd like to hear your thoughts on this bill, and as it makes us relate to the legislative process.
Speaker Osborne
Representative Jared Bauman filed that bill. And I think it's time to have the conversation. I think it's an issue that time has probably come to at least try to figure out if there's a solution. We have the technology now that will enable us to do it, but let's face it, the state has a horrible track record of doing stuff like this.
I think that there will be a pretty exhaustive conversation about the issue. I believe that ultimately there will be a work group convened that President Stivers and I will appoint to work on it in the interim. To convene stakeholders to see what is possible, what will work, maybe do some pilot projects to make sure we can do it efficiently before it's forced down in a manner that may not work.
Because everybody understands how vital these funds are and the timeliness of getting these funds is incredibly important to [local government] operations and budgets. So, we don't want to mess it up. At the same time, if there's a way that we can streamline processes, if there's a way that we can make doing business in Kentucky easier and better, I think we need to do that. But what that ultimately looks like, I don't know, and I don't think the issue is quite right yet.
President Stivers
Sen. Chris McDaniel, our [Appropriations and Revenue Committee] chair, does business in Boone, Kenton and Campbell counties. I think they have 27 or 37 cities there. So, you can understand when he's doing business, he's got to have the ability to report, and he does business in all of them, and it becomes tough on the small business.
But this is something that the Speaker and I agree on. [The state] doesn’t have a really good track record of managing things on a day-to-day basis, so this is not one that I particularly feel would be good with the current state of operations. But you know theoretically, how you do collections and all that, it may be better to look at different models. And I think maybe Judge Gary Moore and them do this in Boone County, they have a collection point for county-by-county systems, instead of the state, which is a little more responsive. So what the right solution is somewhere in between that.
Judge Mosley
You touched briefly on the change of administration in Washington. I know you all are monitoring some things related to the tariffs as well as any type of freezes in federal funding related to the resources that come into the state. Can you talk a little more about that?
President Stivers
I'll start. Maybe the biggest player in the legislative portion of this discussion at the federal level, happens to be Congressman Brett Guthrie from Bowling Green. He is the chairman of the House Energy and Commerce Committee. Sixty percent of all legislation at the federal level has to go through that committee. When you talk about anything from energy to revenues to things that we're watching, his committee chairmanship is going to be critical and key to whatever happens in Washington. I think we're both reaching out to him and trying to have a lot of conversations.
If something happens with the Department Education, I don't think the funding component of it changes. I think the direction and the mandates that come with the funding change. Educational processes don't work the same in this state, from east to west. There is a greater need for [non-traditional instruction] days in the mountains of eastern Kentucky than there out in western Kentucky. That's one educational policy that's here in the state. But when you think about that at a federal level, think of the difference between Kentucky and California or Montana and Florida. Educational policy can't be a cookie cutter mandate coming from the federal level.
So, I think what you're going to see is something that says, here's the dollars we have for you, we get it block granted back to us and then make the decisions on what's best in your state. So all the naysayers and the Chicken Littles that the sky's falling, I don't see that happening. They're going to be measured in what they do.
The other component, it's a huge portion of our budget, but it is the drawdown impact of our Medicaid dollars. And I've spoken about what type of Medicaid dollars will we have access to, and what criteria. I think their logic now is to take some of the guardrails off to give [states] more discretion on maybe putting in work requirements, doing things of that nature.
In 10 to 12 years, the value of the dollar, if we continue to mount debt, is going to be worthless. So they’ve got to get some controls [on the federal budget]. We understand that, but we have to be responsive, especially in those two areas.
Speaker Osborne
Yeah, I think that certainly there are some things that are being discussed federally that could have dramatic impacts on us. We are 100% reactionary to those things. There's no way that [the General Assembly] can craft policy in anticipation of what they may or may not do. I do think that there's some guardrails that we can put up to start preparing for some of those things, but until they actually make those changes, it's really difficult for us to make policy surrounding them.
The Medicaid space is one that is both exciting and frightening. The change in reimbursement rates back to the state, could cost our budget as much as $2 billion, so that part of it’s frightening.
The thing that's kind of exciting about it, though, Rep. David Meade and I have worked on some public assistance reform bills for the last eight years to try to tailor those public assistance benefits. Not in the way you traditionally think of it, throwing people off of welfare benefits and throwing people off of public assistance, but it but in reforming those benefits in a way that actually it helps people get back into the workforce I think much the way they were intended when they were developed.
In the first Trump administration, there was very little interest in Medicaid waivers, even when then Governor Bevin submitted some waivers, there's very little interest in taking those things up. All early indications are that is viewed completely in a different light this time around and seems to be a real focus of this President and his administration. I think that gives us incredible opportunities, because I truly believe one of our biggest workforce issues is our inability to utilize public assistance dollars like they were intended.
Public assistance dollars when used appropriately, I think, are the most powerful tool that we have to get people back in the workforce. There's a lot of people in this Commonwealth that truly want to get back into the workforce, and we know that the obstacles that they face and the obstacles that they fear. Number one is fear of losing health care for their families. Number two is the lack of affordability, affordable childcare for single parents in particular. We have the plan to do it, but if we have the authority to prepackage those dollars for a fraction of the expense of what it's costing us to keep them out of the workforce, we can empower them to be in the workforce.
Judge Mosley
Of course, with the short legislative session, that's a kind of sprint here to the end. What are some other priorities that you're going to see addressed over the next several weeks?
President Stivers
I think every task force that we put together is going to have some legislation come out of it, be it housing, be it artificial intelligence. Some of them will continue.
From our perspective, we're looking at things of how we create jobs, opportunity and economic opportunity. If [local officials] are not trying to think about things and convey to [legislators] things that can help create jobs, kind of like the remote worker recruitment dollars, then you're probably missing the boat. Because declining populations are you're going to have to figure out a way of how to maintain your populations working with us and then attract new people to come there, and so those are the types of functions when you think about housing, you think about the investment in broadband, you think about the different things of how we can do that, that's kind of the focus I think that's going to be in the Senate.
Speaker Osborne
I would agree with Robert on that. I think if you look at our task force groups that we had working during the interim, it gives a pretty clear signal of those things that that we prioritized and those things that we will take up during this session.
Beyond that, I think you're going to continue to see us focus on education, improving educational outcomes. This legislature continues to commit record resources to education, contrary to what you will hear coming out of many parts of the public education sector. Adjusted for inflation, the last three budgets committed record funding to education, and yet we continue to have less than half our kids that are proficient in math and reading. Those are unacceptable outcomes.
Making sure that there is accountability for those resources, making sure that those resources reach the classrooms, the teachers and the kids is paramount. It is not acceptable for us to continue to have our kids not to be able to read at grade level. That's a big topic, and it's a big topic that deserves more than a short session. And so, I think that you will see us start with some frameworks around how to achieve that accountability during this session, and then spend a very, very concerted amount of effort in the interim to dig much deeper.
Staying on the accountability front, I think you're going to continue to see us search for government efficiencies. To make sure that state programs, state agencies are operating as effectively efficiency and inefficient as possible has got to continue to be a priority. The continued growth and prosperity that we have experienced, to continue that is going to be dependent upon our ability to control our expenses.
We understand that Kentucky is a state with many needs. It’s a state that government delivers many services and has to continue to do that, but we've got to do it as effectively and efficiently as possible. One of the House’s priorities because of that goal this year is the establishment of a Medicaid oversight committee to try to dig down and find those efficiencies. If Kentucky has 200,000 less people on the Medicaid rolls this year, compared to last year, and yet, our Medicaid expenses have risen 7%, that is not a trend that can continue. The good news is we're our rolls are decreasing. The bad news is our cost per member on Medicaid is skyrocketing and we’ve got to be able to wrap our arms around that. So I think we're going to continue to see us focus on that.
