Kentucky’s Adult Education Challenge

Education cannot solve all of our economic problems, as the many college-educated young people now unemployed and underemployed can attest. But low levels of educational attainment are an important reason for Kentucky’s economic challenges. A more skilled and educated citizenry is critical to building a Kentucky economy and society that can flourish.

While policy discussions of education often focus on children and traditional-age college students, Kentucky adults ages 25-54 face severe gaps in college attainment that impede state progress and family well-being. Those adults will be participating in the workforce for decades to come, and evidence suggests that a growing share of jobs will require some form of postsecondary education. Yet as the figure below shows, only 30.7 percent of them have an associate’s degree or higher. An astounding 22.4 percent have some postsecondary education but have not completed a degree. The remaining 46.9 percent have only a high school degree, a GED or less.

Kentucky Adult Education
Source: Working Poor Families Project data generated by Population Reference Bureau from American Community Survey 2010

Despite these low levels of education, only 6.9 percent of adults 25-54 are currently enrolled in postsecondary education institutions.

The cuts to higher education included in the new state budget for 2013-2014 will only make it harder for those adults to attain more education, as the budget reductions will further drive up tuition and limit funding for programs to assist them. As we reported in a recent brief, state per student funding for higher education will be at least 27 percent lower in 2014 than it was in 2008. And General Fund appropriations for adult basic education are 11 percent below their 2012 levels in the new budget.

College is made even less affordable by the lack of adequate financial aid options geared to low-income adults. Some adults enroll in school less than half-time because they are working jobs and caring for children, but that makes them ineligible for Kentucky’s major need-based programs. Even if they can attend half-time and are otherwise eligible for the main need-based aid program, known as CAP, the state is only providing funding for one-third of the students who qualify.

Also many adults do not benefit from the merit-based Kentucky Educational Excellence Scholarship (KEES) because they attended high school before the program existed or they did not use the scholarship within five years of high school completion—the program’s time limit. In addition, adults in need of higher education are typically low-income, which often makes them ineligible to benefit from state education-related tax deductions and credits. Read more about Kentucky’s growing college affordability challenge here.

The 2013-2014 budget did include $375,000 for a new Adult Learner Degree Attainment Initiative, in which a couple of four-year universities will create programs designed to increase bachelor’s degree completion for adults. But much more must be done to help Kentucky adults obtain the basic credentials needed to make a higher standard of living even possible.

Leaders Exchange Ideas for Transforming the Economy of Eastern Kentucky

Budget Makes Education Goals Harder to Achieve with Cuts to Per-Student Funding

Kentucky has set high goals and taken great strides in improving educational achievement and degree attainment rates. However, the 2013-2014 state budget will make progress difficult over the next two years given its cuts in per-student funding for both P-12 and higher education.

Education Goals Budget Brief

Growth of Economic Development Incentives Comes with Little Accountability

Two new reports released this week call attention to the growth of state economic development tax incentives and the lack of accountability mechanisms that would enable states to know what they are getting for those subsidies.

In its new report “Evidence Counts,” the Pew Center on the States notes that states spend billions of dollars each year on tax incentives to attract businesses without adequate measures to assess whether those incentives deliver the needed return for the investment.

The report identifies 13 states as “leading the way” toward greater assessment and accountability. Pew particularly holds up Washington, which conducts regular analysis of all of its tax incentive programs and has a citizens commission that uses the analysis to make recommendations to lawmakers on whether and how programs should change. The report also highlights Oregon for requiring its incentive programs to expire periodically unless renewed by the legislature.

Unlike the leading states for incentive accountability, Kentucky is given credit in the report only for producing one evaluation of its economic development programs in 2007. That report found that the incentive programs were very expensive for each job produced—a lot more expensive than a state job training program. The legislature passed a resolution in 2011 to produce a new study on the topic by December 2011, but that study has not been released.

The Pew Center report recommends that states: 1) incorporate evaluation of incentive programs into lawmakers’ policy and budget deliberations; 2) evaluate all major tax incentive programs; 3) look at the economic impact of the programs; and 4) draw clear conclusions in the evaluations.

A report by Goods Jobs First, also released this week, focuses on the growing use of a subsidy that Kentucky pioneered back in 1988—the diversion of individual employee income taxes away from states and to the companies that employees work for. 16 states have moved beyond simply forgiving corporations’ taxes to actually giving companies all or a portion of the individual income taxes withheld from their employees’ paychecks (with the employees getting credit against their individual income taxes owed). The report says that those incentives—called job assessment fees—cost Kentucky about $57 million in 2010.

The reports show that the issues raised in MACED’s 2005 study of Kentucky economic development spending are still relevant today. The state needs mechanisms that allow much greater scrutiny of how we use tax incentives in order to make better decisions about how to allocate scarce public dollars.

What Are Taxes For?

Tax Day is an important time for Kentuckians to consider the role of government in our state and nation. Taxes are a critical tool for doing things together that we cannot do alone. They support investment in education, health care, infrastructure, social services and other public structures essential for the common good in Kentucky.

These days, taxes are the subject of great controversy. But the investments paid for by tax dollars play a unique role in: advancing economic development; contributing to improved health and safety; creating educated workers and citizens; stewarding our natural and other resources; and fostering community. When our public systems and structures are starved of resources, our quality of life is threatened. When they are adequately supported and effectively implemented, they make a better Kentucky possible.

Yet the recession and current slow recovery mean meager levels of revenue to pay for needed investments. Because we face a structural imbalance in our revenue system in Kentucky and have not enacted tax reforms, we will fail to generate adequate revenues even once the economy fully recovers. Meanwhile, the current political debate largely ignores that tax dollars support essential public services. The April income tax due date is a time when those seeking to shrink or eliminate many of the functions of government argue for more cuts. But a real public conversation about the appropriate level of taxes must start with where those tax dollars go.

In 2012, state taxes support a wide variety of important functions, including the following:

Education: Early childhood education and child care; K-12 education; higher education; adult education; worker training; vocational education; libraries; public television.

Health Care: Health insurance for people with disabilities, pregnant women, low-income children and parents, and the elderly in nursing homes through Medicaid; public health; mental health services; disability services; substance abuse services.

Human Services & Supports: Child and domestic violence protection; foster care and adoption; housing; nutrition assistance; support for low-income families; support for veterans; support for the elderly.

Infrastructure: Roads; water and sewer systems; public transit.

Environmental Protection: Land conservation; enforcement of laws protecting land, air and water; state parks; forest protection and management.

Public Safety & Justice: Court system; public defenders and prosecutors; state police; jails and prisons; disaster relief; consumer and worker safety protection.

Economic & Community Development: Small business development; tourism; job development; agricultural development; arts and culture.

Kentucky is projected to collect about $9.2 billion in its General Fund in 2013. Thirty-nine percent of the General Fund is expected to come from the income tax; 33 percent from the sales tax; six percent from the property tax; six percent from corporate taxes and the remaining from the coal severance tax, cigarette tax, lottery and other sources.1

Those dollars are allocated according to Figure 1.

Figure 1
State Spending 2013

Source: Budget of the Commonwealth 2012-2014, HB 265 2012

To see where federal tax dollars go, click here.

 

  1. Office of the State Budget Director, “2012-2014 Executive Budget,” Budget in Brief, http://www.osbd.ky.gov/NR/rdonlyres/28C22F94-8799-47C4-9627-3CF8B40C388F/0/1214ExecBudBudInBrief.pdf

Decline of TANF Caseloads Not the Result of Decreasing Poverty

Caseloads for Temporary Assistance for Needy Families (TANF), a safety net program designed to help families facing economic hardship meet basic needs, have declined sharply since 1995. Some policymakers have cited this decline as proof of the success of the 1996 welfare reform law.

However, a new report from the Center on Budget and Policy Priorities (CBPP) finds that these decreases in TANF enrollments nationwide were actually accompanied by overall increases in poverty.1 According to the report, TANF enrollments decreased 58 percent between 1995 and 2010, but the number of families living in poverty increased by 17 percent during that same time period.

In 1996, before the implementation of “welfare reform,” 68 out of every 100 children living in poverty received cash assistance through the program—what the report calls a “TANF-to-poverty ratio” of 68. By 2010 the ratio was just 27. A low TANF-to-poverty ratio means that only a small share of families with children in need receives TANF cash assistance. In 2010, half of the states had a TANF-to-poverty ratio lower than 25.

In Kentucky, TANF cases declined 61 percent between 1995 and 2010, while the number of families with children in poverty declined only 5 percent. Over that fifteen year period, the TANF-to-poverty ratio in Kentucky dropped from 58 out of every 100 families in poverty receiving TANF cash assistance to 24.

According to the CBPP report, the weakening of TANF’s safety net role has devastating consequences for poor families—particularly for young children. Research shows that poverty hinders the performance of young children in school and shrinks their earnings as adults, among other negative impacts.2

While caseload declines in the late 1990s were largely a result of the strong economy, continued declines in the 2000s, when the economy faltered, were instead caused by the TANF program being structured in such a way that states are encouraged to cut benefits and remove recipients from its caseload. For instance, TANF’s primary performance measure for states is the “work participation rate”—the share of TANF recipients engaged in work activities; this measure actually discourages states from assisting those most in need (who lack education, skills, and/or work experience) because those recipients are less likely to find work. States are also rewarded for simply removing recipients from the TANF caseload regardless of their employment status.

In addition, the flexibility of TANF’s block grant structure has enabled the redirection of funds to uses other than cash assistance while inflation has eroded the value of the block grant by almost 30 percent since the program’s creation.

In order to bolster TANF’s role as a safety net program for low-income families, the CBPP report recommends that TANF replace the work participation rate with a new performance measure that rewards states for positive outcomes such as increasing employment or earnings or improving education and skills.3 The report also suggests that states be required to spend a minimum of their block grant on direct assistance for poor families, and that additional federal funding be made available through the program during difficult economic times to help families meet their basic needs.

  1. Danilo Trisi and LaDonna Pavetti, “TANF Weakening as a Safety Net for Poor Families,” Center for Budget and Policy Priorities, March 13, 2012, http://www.cbpp.org/files/3-13-12tanf.pdf.
  2. A study found that for families with annual incomes below $25,000, children whose families received an income boost of $3,000 a year when they were under age 6 earned 17 percent more as adults. Greg J. Duncan and Katherine Magnuson, “The Long Reach of Early Childhood Poverty,” Pathways, (Winter 2011), http://www.stanford.edu/group/scspi/_media/pdf/pathways/winter_2011/PathwaysWinter11_Duncan.pdf.
  3. Such a performance measure should automatically adjust to reflect the availability of jobs.

Budget Agreement Affirms Deep Cuts to Core Investments

The 2012-2014 budget bill that passed both the House and Senate late last week is—like the budgets previously proposed this year by the Governor, House and Senate—based primarily on cuts. These cuts will further strain the state’s essential programs and services and prevent critical investments in Kentucky’s future.

The budget bill generally upholds the cuts to 2012 funding levels made in the Governor’s budget, which include:

  • Across state government: 8.4%
  • Universities and community college system: 6.4%
  • Kentucky Educational Television, libraries and archives, career and technical education: 4.2%
  • Public safety including state police and local jail support: 2.2%

The cumulative impact on some of the state’s basic services—and on Kentuckians who rely on them—would be substantial. These cuts are on top of ten previous rounds of budget cuts. Figure 1 describes funding decreases from 2008 to 2013 for a select set of agencies and services in the budget bill; these cuts are also inflation-adjusted to November 2011 prices.

Figure 1: Cuts in State Funding
GF 2008 2013
Sources: KCEP analysis, Office of the State Budget Director

Most agencies that are not cut receive flat-lined funding or only small increases in funding:

  • Community based services, as proposed by the Governor’s budget, receives some additional funds to address social worker caseloads.
  • Commonwealth and county attorneys do not receive the 2.2% cut proposed by the Governor.
  • Medicaid includes additional funding for the first time for slots for substance abuse treatment.
  • Aging and Independent Living receives an increase to help with the long waiting lists for Meals on Wheels and other programs (as opposed to the 6.4% cut proposed by the Governor).
  • SEEK—the local funding program for local schools—is flat-lined despite rising enrollments.
  • Funding is flat-lined for Family Resource and Youth Service Centers, Extended School Services, Gifted and Talented program and Community Education program (as opposed to the 6.4% cuts proposed in the Governor’s budget).
  • Among other agencies whose funding is flat-lined are: behavioral health, corrections institutions, student financial aid and public defenders.

Although these agencies are not currently facing cuts, for most the funding levels are still far below those of 2008.

The budget bill includes no raises for state employees and no cost of living adjustments for retirees. The bill also does not fund the additional preschool slots proposed by the Governor for children from households with incomes up to 160 percent of poverty. 600 new slots are proposed for Supports for Community Living over the biennium, to move people into community-based rather than institutional settings, but this is 200 fewer than in the Governor’s budget.

The budget passed by the legislature is woefully inadequate to meet the needs of Kentuckians and to move the state forward. This budget does not make necessary investments in education and other critical areas. And the state’s revenue situation is not expected to improve much over the next few years. Kentucky must take action to raise additional revenue through tax reform so that we do not find ourselves in a similar situation in two years.

Report Highlights Kentucky’s Need for More Progressive Income Tax

A report released today by the Center on Budget and Policy Priorities (CBPP) shows that income taxes for Kentucky families slightly above the poverty line are among the highest in the nation for that income group.

The report says that in 2011 a two-parent family of four in Kentucky with income of only $28,773 (25 percent above the poverty line) paid $1,021 in state income taxes, an amount higher than any other state.

This dubious distinction is because the legislature has been unwilling to comprehensively reform its income tax to make its brackets more progressive and to reflect modern income levels. While the state’s income tax system was progressive (meaning that rates increase based on ability to pay) when it was enacted in the 1930s, it has not changed much since then making for an almost flat income tax.

The important exception to the state’s nearly flat income tax is that in 2005 the legislature did exempt families below the poverty line from the tax by creating a credit based on family size. But that credit phases out for low-income families slightly above the poverty line.

Kentucky is not one of the 25 states with an Earned Income Tax Credit (EITC), a measure that has been shown to substantially decrease poverty. An EITC supplements low wages, helps struggling families through economic hard times and can improve children’s prospects of future success. It is designed to assist working parents with children, reaches its maximum benefit for families earning around the minimum wage for the year and phases out for families with income around $45,000 depending on family size.

Passing an EITC would help address the problem identified in the CBPP report and make for a fairer overall tax system. A progressive income tax helps offset more regressive sales and property taxes, which take up a larger share of the incomes of low-income people than they do higher-income people. Analysis by the Institute on Taxation and Economic Policy (ITEP) shows that Kentuckians with less than $15,000 of family income pay 9.4 percent of their income in state and local taxes, while Kentuckians with more than $346,000 of income pay only 7.1 percent of their income in those taxes.