Expanding Medicaid is a Good Move for Kentucky

Expanding Medicaid through the Affordable Care Act (ACA) is a good move for Kentucky. More than half of the state’s uninsured stand to benefit. It would have a positive impact on the state’s economy while costing the state very little. And the majority of Kentuckians are in favor of the Medicaid expansion.

It’s Good for Workers

Despite being employed, a large share of low-wage workers cannot afford health insurance and do not qualify for Medicaid. They struggle just to make ends meet and cover their basic expenses. Being uninsured means that many go without needed care and prescription drugs—and those who delay care for as long as possible have limited options when they finally do seek care.

If Kentucky expands Medicaid eligibility in 2014, more than 146,000 uninsured workers across Kentucky’s economy could qualify for health insurance. Among them are thousands of store clerks, cooks, waiters and waitresses, construction workers, child care workers, hair stylists, and nursing home caregivers. Many of these workers’ jobs involve caring for the health and well-being of others, and many do work that is physically demanding or that exposes them to significant health risks.

It’s Good for Veterans

Approximately 9,500 uninsured veterans could receive health coverage if Kentucky expands Medicaid, and their spouses could qualify for coverage too. Most people assume that all veterans can receive health care through the U.S. Department of Veterans Affairs (VA), which operates the nation’s largest health system. But only about 37 percent of the country’s more than 22 million veterans receive health coverage through the VA. There are nearly 21,000 uninsured veterans in Kentucky.

It’s Good for Kids

Expanding Medicaid is good for kids because it is good for their parents. Parents with health coverage are more likely to be healthy and to take steps to keep their children healthy—including making preventive care appointments. Insured parents are also more likely to enroll their children in health coverage. While most of Kentucky’s low-income children receive health coverage through Medicaid or the Kentucky Children’s Health Insurance Program (KCHIP), the state’s free or low-cost health insurance for children, there are still approximately 61,000 uninsured children in Kentucky—many of whom may be eligible for Medicaid or KCHIP.

It’s Good for the Economy

Expanding Medicaid would likely result in the state’s workforce becoming healthier and more productive. It would also result in more federal dollars for the state. These funds would go to health care providers, support a significant number of new jobs and increase economic activity in the state. Families USA estimates that there would be approximately 14,700 new jobs across all sectors of the state’s economy.

It’s a Good Deal

If Kentucky expands Medicaid, the state would pay nothing for the first three years and no more than 10 percent after that. And once the state’s portion kicked in, additional spending wouldn’t end up being much more than what Kentucky would have spent on Medicaid in the absence of the ACA. The state would also spend less money providing health care for the uninsured.

Pension Revenue Bill Provides Modest Resources to Address Budget Challenges

The pension revenue bill that passed the General Assembly this week provides only an estimated $31.7 million in net new state revenue to help address Kentucky’s budget needs. House Bill 440 combines General Fund revenue tweaks and a Road Fund tax cut.

While official documents identified $95.7 million in new General Fund monies, $30 million of what is counted in that amount is expected revenue from federal tax law changes and not because of House Bill 440. Also, the bill cuts $34 million from the Road Fund by providing a trade-in credit for the value of a used car when purchasing a new car. When those two items are subtracted from $95.7 million, the net impact of the bill is only $31.7 million.

According to the actuarial analysis of the pension bill, the state will need an estimated $253 million more in 2015 and $284 million in 2016 from all funds (meaning the General Fund but also the Road Fund and other sources) to make the full annual pension contribution.

$32.5 million of the added General Fund dollars in the bill come from a reduction in the individual income tax credit that can be claimed for each member of a household from $20 to $10. Another $33.2 million is from closing various loopholes, including $15 million from no longer allowing large multi-state corporations to use management fees paid between subsidiaries to lower or reduce their state corporate income taxes and $11.2 million from limiting the compensation vendors can claim from remitting sales taxes to the state.

People below the poverty line in Kentucky don’t pay state income states, so would not be impacted by the cut in the personal income tax credit. For those above the poverty line, the plan is slightly regressive although the additional taxes owed are very small. For a three-person family, the resulting $30 in additional taxes would make up 0.09 percent of income for families who make $35,000 a year and 0.02 percent of income for those making $150,000 a year.

The bill’s cut in the Road Fund is on top of the long-term structural challenges Kentucky faces in sustaining its transportation revenues, over half of which comes from the tax on motor fuels, primarily the gas tax. Reliance on the gas tax is problematic for the Road Fund, as automobile fuel efficiency is increasing in part because of higher standards required under federal law. In Kentucky, taxable gallons of gas have declined just over one percent a year on average for the past seven years. Gas tax revenues will be eroded further by the move to cars with electric or other fuel sources.

The trend in declining usage has been masked in Kentucky in recent years because most of the state’s gas tax is pegged to the wholesale price of gasoline, which has been rising.

Because the gas tax is linked to the price, it is also vulnerable to price decreases. The state sets a floor below which the average wholesale price cannot go, but the last increase in the floor was in 2009 to the then-price of $1.786 a gallon. The Governor’s Blue Ribbon Commission on Tax Reform proposed raising the floor to the current average wholesale price, which is about $2.616 a gallon, to better protect the Road Fund against price declines. But HB 440 takes no action on that recommendation.

Overall, the revenue plan is small and nowhere close to the kind of comprehensive tax reform proposal that the Blue Ribbon Tax Commission spent 11 months developing. Although not perfect, that plan would raise $659 million. The next question on everyone’s lips should be: when will Kentucky address the broader and bigger issue of funding a more adequate budget and fixing our tax system for the long haul?

Ryan Budget Would Mean Substantial Funding Cuts in Kentucky

House Budget Committee Chairman Paul Ryan’s budget—which the House passed by a slim margin last week—would cut funding to state and local governments in Kentucky by an estimated $301 million in the coming year and $3 billion over the next 10 years, according to a report released today by the Center on Budget and Policy Priorities.

The report is based on the assumption that the federal government would cut funding to state and local governments by the same 18 percent over the next 10 years that Ryan’s budget would slash from all non-defense discretionary spending, which is the source of state and local grants.

These cuts would be in addition to the tight spending caps already set in place by the 2011 Budget Control Act and the cuts now going into effect under sequestration. Ryan’s plan would cut funding to state and local governments by three times more in 2014 than the sequestration cuts. As a percent of GDP, federal funding for state and local grants would drop far below historic levels, to half its average of the last 35 years by 2023.

The $301 million in cuts for the coming year could come from funding for Title 1 schools, special education, Head Start, housing and community development, WIC, clean water programs, mental health services, community health centers, workforce development, childcare assistance and public safety programs. One-fourth of federal non-defense discretionary funding to state and local governments is for education.

To put $301 million into perspective, Kentucky’s entire Cabinet for Economic Development budget for 2013 was less than one tenth that much. The $3 billion in cuts over the next 10 years do not even include cuts to the department of transportation, which nationally would total $139 billion over the next 10 years.

Nor do they include the extraordinary strain that Ryan’s plan would put on Kentucky’s economy and budget by cutting funding for Medicaid 31 percent by 2023 and repealing the ACA’s bargain Medicaid expansion. The Children’s Health Insurance Program (CHIP), a successful program providing health coverage to vulnerable kids, would be merged with Medicaid into a block grant that is not designed to grow at the rate expected health costs will grow.

It’s hard to tell where Kentucky would come up with the difference. Still suffering from the Great Recession and a slow recovery, the state would be forced to cut budgets even further than they have been in recent years, raise new revenue, or both.

Ryan’s budget forsakes essential investments in schools, roads and other critical services while at the same time including huge cuts in tax rates for high-income people and corporations. It’s a recipe for further harm to Kentucky’s economy and quality of life.

Federal Budget

Kentucky Remains Long Way from Employment Recovery

New estimates show that Kentucky has added on average 1,500 net new jobs a month for the last six months and 1,525 a month for the last year. So far, the recovery is only very slowly shrinking the state’s jobs deficit, the gap between the jobs we have and the jobs we need to replace those lost in the recession and catch up with growth in the population.

At the worst point in the recession, Kentucky had lost an estimated 118,300 jobs. We have since gained back 85,700 of those jobs for a net loss of 32,600. However, we’ve needed 54,900 additional jobs over that time to keep up with population growth, for a total current jobs deficit of 87,500.

If job growth could accelerate to 2,500 jobs a month, it would still take about three years—until January 2016—to get back to the pre-recession unemployment rate. At 1,500 jobs a month, it would take much longer.

The state’s job story could be made worse by the impact on the economy of new sequestration-related budget cuts and the elimination of the temporary payroll tax cut at the end of last year. All the more reason the federal budget should include short-term public investment to spur faster job growth and avoid dangerous cuts that will slow the recovery.

 job watch graph march 2013

Source: Economic Policy Institute analysis of Bureau of Labor Statistics Current Employment Statistics data.

Report – Kentucky Has Cut Higher Ed Funding 26 Percent Since 2008

Revenue Recovery from Great Recession is Slow

The debate over pensions in Frankfort hinges in part on whether the state should raise additional revenue to help make the pension payment or dig into the rest of the budget to find the funds. The weakness of the current economic recovery is one reason more revenues simply must be generated.

Just how slow is our recovery from the Great Recession? The figure below compares revenue growth in inflation-adjusted General Fund dollars after the current recession and after the last recession in 2001. The 2001 recession was not nearly as deep, and inflation-adjusted revenue surpassed the pre-recession level by the fourth year. But by five years after the start of the Great Recession, inflation-adjusted revenues are still substantially below the pre-recession level.

recession

Source: KCEP analysis using data from Office of the State Budget Director, Kentucky Department of Revenue and Bureau of Economic Analysis.

Revenues recovered more quickly in 2001 both because the recession was less severe and because the state passed a tax modernization package in 2005 (year 4 after the 2001 recession) that at least temporarily raised additional dollars. Unfortunately, that revenue bump was designed to phase out and become revenue neutral, and the legislature then held a special session in 2006 to roll back some business tax increases that had been included.

This time around, the only revenue boost was a small alcohol and tobacco tax increase in 2009. And the recovery continues to be too weak to get the state back on track—revenues are expected to grow only 2.4 percent in 2013 and 2.3 percent in 2014, years 6 and 7 after the start of the recession. Inflation is currently expected to be 1.5 to 2 percent in those years, meaning real revenues will continue to be below 2007 levels.

The legislature will meet again in January to craft a new budget with extraordinary pressures on the limited dollars that will be available. The current budget was balanced only after $1.6 billion in painful cuts, and was patched together using one-time money that won’t be available next time. The weak economy will mean continued higher need for services, while health care inflation, demands on the education system, federal budget cuts and the aging of the population will add more strain. And without reform, the tax system doesn’t generate enough revenue to keep up with even modest economic growth.

Kentucky needs additional revenue for a budget that comes anywhere close to moving the state forward.

Note: Blog uses the consumer price index as the inflation measure, which is an underestimate of inflation for state services in part because health care makes up a substantial portion of state costs and typically grows at a faster rate.

Kentucky’s Disinvestment in Higher Education Part of a Harmful National Trend

New Report: “Recent Deep State Higher Education Cuts May Harm Students and the Economy for Years to Come”

Kentucky’s Disinvestment in Higher Education Part of a Harmful National Trend

Report describes states’ failure to invest in public universities and colleges

Kentucky has cut investment in public universities and colleges in recent years, driving up tuition and threatening educational quality while making it harder for the state to build an economy that relies on a well-educated workforce. Those cuts are part of a nationwide trend, according to a new report from the Center on Budget and Policy Priorities.

Kentucky cut funding for higher education by 26 percent since 2008 when adjusted for inflation, a decrease of $2,663 per student, according to the report. Nationwide, states cut higher education spending by 28 percent or $2,353 per student.

The immediate consequences of these cuts in Kentucky are clear: the average tuition at a public, four-year college in Kentucky has increased by 22 percent or $1,549 since the start of the recession.

“Everybody knows that a strong economy is built first and foremost on a well-educated workforce,” said Jason Bailey, director of the Kentucky Center for Economic Policy. “Yet, Kentucky has chosen to cut investment in this area, which makes it harder for many people to afford college. This is not the way to build a prosperous state.”

When the recession hit in 2008 and tax revenue dropped, most states relied heavily on spending cuts rather than a more balanced mixed of spending cuts and revenue increases. As a result, many states slashed funding for public colleges and universities.

As a result, tuition at four-year public colleges has grown nationally by 27 percent since the 2007-08 school year. The price of attending a public college or university has grown significantly faster than the growth in median income in the U.S. over the last twenty years.

Public colleges and universities also have cut faculty positions, eliminated course offerings, closed campuses, shut down computer labs, and reduced library services.

Last year the University of Kentucky laid off around 140 people and eliminated another more than 160 vacant positions. The University of Louisville recently announced that it plans to introduce an early retirement program to senior employees to free up university funds.

To reverse these trends, Kentucky needs to make higher education a priority. A large and growing share of jobs will require college-educated workers, and the only way to make sure Kentucky students are prepared is to keep higher education affordable.

“More jobs in the future will require college-educated workers,” said Phil Oliff, policy analyst at the Center on Budget and Policy Priorities and author of the report released today. “For the sake of its economy and future workforce, Kentucky should start reinvesting in its colleges and universities now.”

In order to make sure Kentucky has enough money to make this critical investment, lawmakers must make tax reform a priority. Despite the recommendations of the Governor’s Blue Ribbon Commission on Tax Reform to raise new revenue, tax reform was not taken up during the legislative session that is currently wrapping up.

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The Center’s full report can be found at: http://www.cbpp.org/cms/index.cfm?fa=view&id=3927.

The Kentucky Center for Economic Policy is a non-profit, non-partisan initiative that conducts research, analysis and education on important policy issues facing the Commonwealth. Launched in 2011, the Center is a project of the Mountain Association for Community Economic Development (MACED). 

Funding for Higher Education Lags Since Recession, Report Says

Not Paying Pension Bills Adds Up

A major contributor to Kentucky’s pension funding problem is the legislature’s failure to make the full required contribution to the retirement system in recent years.

Shortfalls in payments started as early as 1993, but began in earnest in 2004. As the first figure below shows, the state has shortchanged the pension system by at least $100 million a year since 2007.

 Annual Shortfalls

Source: KCEP analysis of Kentucky Retirement Systems data. Analysis is for Kentucky Employees Retirement System Pension Fund only.

Added up, the shortfalls total $1.8 billion, as shown in the next figure. And that’s not including the shortfalls in funding for retiree health benefits, which also amount to billions of dollars.

Since the contributions were not in the system to earn investment returns, the full impact of underfunding is even worse. Taking those lost returns into account brings the total shortfall for the pension fund alone up to an estimated $2.4 billion by the end of 2014.

 Cumulative Shortfall

Source: KCEP analysis of Kentucky Retirement Systems data. Analysis is for Kentucky Employees Retirement System Pension Fund only.

How big a number is $2.4 billion? At the end of 2012, the Kentucky Employees Retirement System pension fund had $3.8 billion in assets. So without the shortfalls the system would have around 63 percent more assets.

Failing to pay the full required contribution is one of two ways the state has underfunded promised benefits. The second way is by not paying for cost-of-living adjustments and changes to benefits. These items should have been pre-funded, but instead were added to the long-term liability. Some of the benefit changes were made to encourage experienced employees to retire in order to save money in the already-lean budget—but the changes just shifted new costs over to the retirement system.

Poor investment returns resulting from two recessions in the 2000s also worsened the problem, but Kentucky’s pension system wouldn’t be a subject of such scrutiny if it were for investment results alone. Kentucky’s losses were on par with other states, but most of those states will return to adequate funding levels in the next few years because they did not underfund promised benefits.

Failing to make adequate and timely payments to the retirement system has set Kentucky back. Funding the benefits that are promised is the essential element of any viable solution to Kentucky’s pension challenge. Without more money to make the full required contribution—and without attaching resources to any cost-of-living adjustments in the future—Kentucky’s problem will only continue to accumulate.

We must talk about revenue, because without it there just won’t be enough money in the budget (see here and here) to make the full annual payment while also doing justice to Kentucky’s other needs.

*Funding shortfalls for 2013 and 2014 are estimates using the budgeted contributions for those years, the system’s assumed investment rate of return of 7.75 percent and the same covered payroll as 2012. Actual rate of return for the 2013 fiscal year through the end of January is 9.51 percent: https://kyret.ky.gov/images/uploads/news/January_2013_Performance_Update.pdf