The Benefits of Expanded Pre-School

In its final days of negotiating a new budget, a sticking point between the House and the Senate is whether to include new dollars for the expansion of pre-school. The governor had proposed $15 million in 2014 for 4,400 new preschool slots for four year-olds, and the House put in $7.5 million for half that many openings. However, the Senate included no new money for pre-school.

Pre-school is an effective long-term economic development strategy. Economist Timothy Bartik examined the economic impact of universal pre-school programs and found that every $1 invested in these programs resulted in $3 in higher earnings for state residents. Bartik also found that in the long-run investment in universal pre-school had twice the impact on jobs for state residents and a 15 percent greater impact on earnings than investing the same amount of money in business tax subsidies.

Studies show that those who participate in early childhood education programs are significantly more likely to graduate from high school and are 2.5 times more likely to continue on to higher education. Pre-school programs can also benefit parents by allowing them more opportunity to participate in the workforce.

A longitudinal study of the impact of high-quality pre-school on children from disadvantaged backgrounds found that the benefits compound over time. By age 19 those students had stronger social skills than those who did not participate in the program. By age 27 they had lower arrest rates, higher income levels and higher rates of high school completion. That study estimated that every $1 invested in such programs results in more than $17 in returns to society.

Early childhood education is one of the key investments Kentucky must make in order to strengthen our economy, families and communities. The state’s cuts-based approach to the current budget both reduces jobs and services at a time we greatly need them and undermines our ability to make long-term economic advances.

Set Endowment for Coal Counties

Op Ed: Given Kentucky’s Budget Downpour, State Should Use Rainy Day Fund

The budget the Senate passed on Thursday would not use any of the $122 million sitting in the state’s rainy day fund to help reduce cuts to essential services. In fact, the budget would put even more money in the fund, boosting it to $128 million.

That is a mistake—one that lawmakers should correct as the Senate negotiates a final budget with the House, which proposed using nearly $100 million of rainy day money in order to mitigate cuts.

Rainy day funds are cash reserves designed to be used when times are bad and grown when times are good. Currently, times are quite bad: the General Assembly is dealing with the worst gap between the state’s needs and the resources it takes to meet them since the recession hit in 2007.

In order to balance the budget, the legislature is proposing cuts of up to 8.4 percent to services for Kentucky children, seniors and working families. That is on top of 10 rounds of other cuts over the past few years, which have reduced funding for many of the basic services Kentuckians rely on by 20 to 30 percent.

The deeper the cuts in education, health care and other investments that help individuals and families thrive, the greater the harm to Kentucky’s economy and its ability to generate jobs. It would be wise to minimize those cuts by drawing down the rainy day fund, among other strategies, just as intended when the fund was created in 1989.

While the fragile economic recovery has led to slight increases in state revenues, they are nowhere near what we need. In the past few years, the state’s weak tax receipts were partially offset by $3 billion in federal Recovery Act money. Those dollars helped keep teachers in the classroom and police on the roads, but no additional federal help is on the way.

Unemployment is still high, which means more people need Medicaid and other lifelines for struggling families. These needs will gradually decline as the economy improves, but at current rates of growth that won’t occur for several years.

The desire of some lawmakers to lock up the rainy day fund seems to be driven by incorrect notions of fiscal responsibility. They fear that investors in state bonds will be spooked if the reserve funds are used, leading to higher borrowing costs.

But credit rating agencies that assess borrowing risks for investors will not ding Kentucky for dipping into its rainy day fund—they expect that money to be used. A Standard & Poor’s report released after the 2001 recession stated that “it is important to keep in mind that use of budget stabilization reserves is not a credit weakness in and of itself. The reserves are clearly in place to be used.”1 In fact, seven of the 10 states with AAA bond ratings (the highest rate) used one-third or more of their rainy day funds to cope with that earlier recession, according to a University of Tennessee study. Three of those states had used their entire rainy day funds.2

The current balance of Kentucky’s rainy day fund is accidental rather than the result of prior savings. Revenue forecasts always include some margin for error, and in 2011 revenues came in higher than the estimate leading to a $122 million deposit into the fund.

Kentucky’s problems are rooted in the combination of an outmoded tax system no longer adequate for the state’s needs and an economy that is still a long way from full recovery. We need to address this challenge in a way that limits the economic pain. If legislators are unwilling this session to balance spending cuts that threaten the state’s future with needed tax reforms, they should at least use the rainy day fund to temper some cuts to vitally needed services.

Jason Bailey is director of the Kentucky Center for Economic Policy. 

  1. Robin Prunty and Karl Jacob, “Top 10 Management Characteristics of Highly Rated Credits in U.S. Public Finance,” Standard and Poor’s, January 11, 2006.
  2. University of Tennessee Center for Business and Economic Research, “Rainy Day Funds, Analysis and Recommendations for Tennessee”, May 2007.

Legislation Requiring Government-Issued ID Could Deny Public Benefits to Eligible Recipients

Senate Bill 118, which passed the Senate yesterday, would require applicants for all public benefits to provide proof of lawful presence in the United States. While the bill’s proponents say it is needed to bar illegal immigrants from state and federal public benefit programs, the legislation instead threatens benefits for citizens most in need of assistance, adds costs to the state and promotes inaccurate stereotypes about immigrants.

A substantial number of U.S. citizens do not have government-issued identification that proves citizenship—particularly those who are low-income, minority and elderly. One study found that approximately seven percent of all U.S. citizens lack such documentation. And among low-income, minority and elderly citizens, the rates are estimated to be much higher: 15 percent of citizens earning less than $35,000 per year; 18 percent of citizens aged 65 or above; and 25 percent of adult African American citizens. Women are also much less likely to have government-issued identification with their current name.1 Government-issued identification has become increasingly difficult to obtain or replace, and the proposed legislation allows an applicant only 30 days after applying for benefits to produce such documentation.2 If Senate Bill 118 becomes law, a significant number of Kentuckians who are citizens could be denied benefits.

The implementation of such legislation would also cost the state money during a time of significant budget challenges. A fiscal note for similar legislation proposed in Pennsylvania in 2008 estimated that the initial cost would be at least $19 million.3 And the addition of federal citizenship documentation requirements for applicants and recipients of Medicaid through the Deficit Reduction Act of 2005 was estimated by the Committee on Oversight and Government Reform to save only 14 cents for every $100 spent by federal taxpayers to administer the requirements.4

The passage of such a bill would also reinforce inaccurate stereotypes about immigrants—for instance, that illegal immigrants are fraudulently receiving public benefits. In contrast to this widely held belief, the Committee on Oversight and Government Reform found only eight undocumented immigrants out of 3.6 million Medicaid enrollees in six states that were studied.5

  1. Brennan Center for Justice at New York University School of Law, “Citizens Without Proof: A Survey of Americans’ Possession of Documentary Proof of Citizenship and Photo Identification,” 2006,
  2. An applicant without appropriate identification would sign an affidavit claiming either citizenship or lawful presence in the United States. Those who are U.S. citizens would then have thirty days to provide appropriate documentation. For non-citizens, applicants’ information would be submitted to the federal SAVE program (Systematic Alien Verification for Entitlements) for verification of immigration status in the United States.
  3. Vincent Rossi, Fiscal Note, March 31, 2008,
  4. Majority Staff Committee on Oversight and Government Reform, “Summary of GAO and Staff Findings,” July 24, 2007,
  5. Majority Staff Committee on Oversight and Government Reform, “Summary of GAO and Staff Findings.”

Report Urges Policymakers to Consider Long-Term Sustainability of Coal Severance Fund

“Report Urges Policymakers to Consider Long-Term Sustainability of Coal Severance Fund”

By Erica Peterson

Promoting Long-Term Investment in Appalachian Kentucky: A Permanent Coal Severance Tax Fund

Road through AppalachiansForecasts predict dramatic declines in eastern Kentucky coal production in future years, heightening the need for a strategy to transition the region’s economy. A permanent coal severance tax fund, as implemented in other natural resource-rich states, could help extend investment over the long-term and create a permanent financial asset for the region’s future.

Coal Severance Tax Brief.pdf

Blue Ribbon Commission on Tax Reform Launches Website

The Blue Ribbon Commission on Tax Reform launched a website this week to provide information about the commission process and ways for everyday Kentuckians to get involved. The commission has been tasked with recommending changes to Kentucky’s tax code by mid-November, after studying the state tax system and reviewing input from the public and interested parties.

The website includes the schedule of commission meetings (the first was held on Tuesday), which are open to the public:

Public Meeting Schedule

(All times are local)

  • Tuesday, March 6, 2012, 12:30-3:30 p.m. Transportation Cabinet Auditorium, Frankfort, KY
  • Tuesday, April 10, 2012, 1:00-4:00 p.m. Capitol Annex Room 154, Frankfort, KY
  • Tuesday, May 8, 2012, 1:00-4:00 p.m. Capitol Annex Room 154, Frankfort, KY
  • Tuesday, May 29, 2012, 6:00-8:00 p.m. Location TBD in Paducah, KY
  • Tuesday, June 19, 2012, 6:00-8:00 p.m. Location TBD in Bowling Green, KY
  • Tuesday, July 10, 2012, 6:00-8:00 p.m. Location TBD in Louisville, KY
  • Tuesday, July 24, 2012, 6:00-8:00 p.m. Location TBD in Covington, KY
  • Tuesday, August 7, 2012, 6:00-8:00 p.m. Location TBD in Prestonsburg, KY
  • Tuesday, August 21, 2012, 6:00-8:00 p.m. Location TBD in Lexington, KY
  • Wednesday, September 19, 2012, 1:00-4:00 p.m. Location TBD in Frankfort, KY
  • Tuesday, October 2, 2012, 1:00-4:00 p.m. Location TBD in Frankfort, KY
  • Thursday, November 8, 2012, 1:00-4:00 p.m. Location TBD in Frankfort, KY

Anyone interested in making a presentation at one of the evening meetings throughout the state is encouraged to make a request to do so on the commission website. The public is also invited to submit public comments, questions, and recommendations for the commission through the site.

Threatening Benefits for Low-Income Families Wrong Way to Address Drug Problem

Legislation in the Kentucky General Assembly proposes to eliminate public assistance for low-income individuals suspected of drug use unless they can pass drug tests or enroll in treatment programs. House Bill 26, which has 61 sponsors, requires the Cabinet for Health and Family Services (CHFS) to implement a drug screening and testing program for applicants and recipients of Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), and Medicaid. The bill is costly, inefficient and possibly illegal; is unfair and potentially harmful to the low-income families that are singled out; and is not an effective way to make much-needed progress on Kentucky’s drug problem.

Drug Testing Bill Brief