The passage of the Kentucky Educational Reform Act (KERA) in 1990 had a dramatic impact on the funding of primary and secondary education in the state. The amount of money spent on education increased significantly with the passage of KERA with districts in rural areas of the state experiencing the largest growth in spending (Hoyt, 1999). This has led to a decline in the disparity between rural and urban districts in education spending. However, despite the increase in educational spending, Kentucky still lags behind the typical state in the U.S. in spending per student (Troske, 2008). This report is the first in a series of two examining how educational budgets are allocated in Kentucky and whether differences in how money is spent affect educational outcomes. In this report the authors focus on how education dollars are spent in Kentucky, how spending has changed over time, and how spending in Kentucky compares with spending in other states. Findings reveal that while per-pupil spending in Kentucky has risen since the passage of KERA, the main effect of KERA appears to be on differences in education spending across regions of the state and on the sources of educational revenue for districts in different parts of the state. Since 1990 differences in educational spending per pupil between urban and rural areas of the state have all but disappeared. At the same time there is a growing disparity in the sources of funding with urban districts now obtaining over 40% of their funding from local taxes while rural districts obtain only around 20% of their funding from local sources. And while districts in all areas of the Commonwealth tend to devote a similar share of spending to the various functions, it is still possible that the lower level of local control over districts in rural areas of Kentucky could impact educational outcomes in these districts. (Contains 19 tables, 28 figures, and 4 endnotes.) [Funding for this paper was provided by the Bluegrass Institute. This study was released jointly by the Friedman Foundation for Educational Choice, Bluegrass Institute for Public Policy Solutions and the Center for Business and Economic Research.]