Budget Would Further Reduce College Affordability

Three stacks of books and large dollar stack.The barriers to affordable higher education–especially for low-income Kentuckians–will continue to grow under a budget that cuts funding to postsecondary institutions and limits need-based financial aid.

Budget Would Further Reduce College Affordability

The Governor’s budget includes cuts of 6.4 percent to higher education institutions. On top of previous cuts and because of rising enrollment, per student General Fund dollars for higher education institutions would be an estimated 22 percent lower next year than in 2008 under the plan (see figure below). More cuts would inevitably lead to tuition hikes on top of increases of 130 to 200 percent (depending on institution) over the past decade.

To make higher education costs even harder to pay, the budget freezes the funding level of the College Access Program (CAP), the source of state financial aid most targeted to low-income Kentuckians. CAP has been underfunded for years, and in 2011 only one-third of students who qualified for the program actually received assistance because of limited dollars.

As in past budgets the governor proposes to fully-fund the merit-based Kentucky Educational Excellence Scholarship (KEES) program. The choice to fully fund KEES but not CAP has implications for low-income students seeking financial aid. CAP assistance is targeted to lower-income students, and 40 percent of the monies go to those with family incomes of less than $12,767. But while 87 percent of students receive at least some KEES scholarship, overall KEES monies end up being awarded disproportionately to wealthier students–a full one-third of the dollars go to those with family incomes over $82,675.

The governor’s budget funds 100 percent of the Kentucky Higher Education Assistance Authority’s budget request for KEES, but only 63 percent of its request for CAP.

A long-term shift from need-based to merit-based aid has been happening across the country, but researchers have questioned the wisdom of that trend since higher-income students are more likely to attend college even without the subsidy. Harvard economist Bridget Terry Long has suggested that “increased emphasis on merit in financial aid may exacerbate the trend toward greater income inequality, even among students of equal academic merit.”

In addition, little-noticed higher education tax deductions and credits–which cost the state millions of dollars and tend to disproportionately benefit higher-income people–are not cut alongside other higher education spending in the Governor’s plan since his budget includes no tax changes. Those credits in effect come off the top before monies are allocated for financial aid or any other program in the budget—whether or not they are a better use of state dollars.

Funding for higher education is a key investment in the economic future of Kentucky. The state’s low-income families in particular are in need of education that can help them access career pathways to skilled employment once the job market recovers. Budget cuts that result in further tuition increases and limited financial aid to those who most need it will mean more Kentuckians failing to obtain degrees or burying themselves under mounting student loan debt.

See KCEP’s report “The College Affordability Crunch in Kentucky” for more on this issue.

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Source: KCEP analysis using data from the Office of the State Budget Director and the Council on Postsecondary Education. Uses fall head count enrollment data. 2013 and 2014 estimated using governor’s recommended appropriation and the same annual enrollment growth rate as from 2011 to 2012.

Inadequate Tax System Has Big Role in Austere Budget

While the still-weak economy and the end of federal recovery-related assistance are important factors in the tight budget now being considered in Frankfort, long-term structural problems with Kentucky’s tax system also play a big role.

Economists say that a state’s tax revenue should grow in line with its economy in order to keep up with approximate growth in costs. Kentucky’s General Fund revenue has been declining as a share of the economy for a long time, and that trend is expected to continue over the next two years (see the Figure below). Under the official state forecast, revenues will dip slightly below six percent of state personal income in 2013 and 2014.

If the tax system was able to perform as it did over much of the 1990s, when General Fund revenue was around seven percent of state personal income, Kentucky would have over $1.5 billion more a year to address shortfalls in education, health and other critical areas. To put that amount into context, State Budget Director Mary Lassiter told the House Appropriations and Revenue Committee today that $1.3 billion has been cut from appropriations over the last four years.

Reforms like broadening the sales tax to include services, making the income tax more progressive, and removing targeted tax deductions, exemptions and loopholes would result in a more reliable stream of revenues.

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Sources: KCEP analysis, Bureau of Economic Analysis, 2012-2014 Executive Budget in Brief

Governor’s Budget Proposes Deep Cuts on Top of Past Reductions

The Governor’s budget proposes cuts of up to 8.4 percent to many state services that have already been slashed deeply over the last few years. The cuts would leave even more agencies with budgets far below 2008 levels, ranging from public libraries to public health departments. Many other services, including K-12 education, would face lesser cuts or their funding would be flat-lined under the Governor’s plan.

Executive Budget Brief

KCEP Urges Tax Reform Over Expanded Gaming

“KCEP Urges Tax Reform Over Expanded Gaming”

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Unemployment Insurance Important to Economy but Limited for Workers

The loss of over 100,000 Kentucky jobs during the severe economic downturn of the last few years would have been even worse for the economy—and Kentucky families—if it wasn’t for unemployment insurance (UI). As the state’s unemployment insurance system rebuilds its trust fund in future years, it is important that already-limited benefits for workers be protected.

Updated Kentucky UI Brief

Kentucky Should Re-Enact Surcharge to Pay Unemployment Interest

Kentucky owes interest payments on the nearly one billion dollars borrowed from the federal government to pay unemployment insurance benefits during the economic downturn. The next interest payment, due September 30, is estimated to be $44 million. In addressing these looming payments, the best strategy is for Kentucky to re-enact an employer surcharge.

Updated UI Interest Brief

Lawmakers Expect Budget Cuts Will Affect All Areas