Kentucky Program Led the Way in Helping Low-Income Adults Get Higher Education, but Barriers Growing

Kentucky adopted innovative policies beginning in the late 1990s to help low-income adults attend community college while receiving the supports they need to succeed in school. But shrinking public dollars and increasingly strict federal rules are making it harder to scale those innovations up.

Helping More Kentuckians Get the Skills They Need

Congress passed welfare reform in 1996, which eliminated Aid to Families with Dependent Children (AFDC)—a program that provided cash assistance to low-income families—and replaced it with Temporary Assistance for Needy Families (TANF). TANF is a block grant program that includes work participation requirements for those receiving public assistance and puts a time limit on how long families can receive benefits.

Many states implemented TANF in a way that discouraged recipients from attending college and focused simply on reducing the welfare rolls, whether or not families’ lives improved as a result. Kentucky, however, recognized the critical role of education in helping people obtain jobs with family-sustaining wages.

The state passed legislation in 1998 requiring the Cabinet for Health and Family Services to “take all necessary actions to ensure that parents receiving public assistance may engage in educational and vocational programs where assessment shows their chances of achieving self-sufficiency will improve.” The law requires case managers to regularly inform TANF recipients about educational opportunities. And regulations passed at the time allow TANF recipients to attend college full-time for up to two years without being required to participate in other work activities.

To increase those recipients’ chance of success in higher education, the state created the Ready to Work (RTW) program. The program places Ready to Work coordinators at each community college campus throughout the state. The coordinators serve as mentors, counselors, advocates, tutors and case managers for TANF recipients enrolled in postsecondary education. The coordinators help recipients make career plans; identify a program of study; access financial aid; obtain other supports through TANF and the community including help with child care and transportation; and get academic assistance.

The coordinators also help participants access a second key component of the program—a work study job. Participants have the option of signing up for work study positions that provide them with income that does not reduce their TANF cash benefit. RTW participants typically go through two tiers of work study. The first placement is either on campus or in a non-profit organization and is focused on the soft skills of employment. The second is more personalized and tied to the participant’s job goals—and is usually off-campus. Although work study is optional under RTW, in a recent year 59 percent of RTW participants were engaged in TANF-funded work study and 19 percent in federal work study (with some overlap between the two).

Results from RTW are very positive. TANF recipients in Kentucky are more likely to be enrolled in college than the adult population as a whole. The school retention rate of RTW participants is higher than for the entire system, and the average grade point average (GPA) of participants has been on par or better than the system-wide GPA. Graduation rates have been good, and RTW participants are more likely to receive associate’s degrees than the community college population as a whole, where certificates are more common.

A study published by the Kentucky Legislative Research Commission in 2004 shows that RTW is paying off in higher rates of employment and better wages. Compared to TANF recipients participating in other work-related activities, those in the category receiving education and training including RTW participants had the highest employment rate upon leaving the program, the highest job retention rate a year later, and the highest average annual wage of all categories by about $3,500 a year.

Building on the success of RTW, the state created the Work and Learn (WAL) program in 2003. WAL targets those TANF recipients with lower levels of education—those working toward a GED as well as high school graduates brushing up on basic skills before entering college. Like RTW, WAL has coordinators throughout the state that provide counseling and help participants access work study opportunities while attending adult basic education or remedial education classes. Results are also strong. A majority of WAL participants without a high school credential get a GED and many are making the transition into postsecondary education.

Barriers to Success Increase

However, a number of challenges are making it increasingly difficult to scale up these successful initiatives. One challenge has been meeting the federal work participation benchmarks of the TANF program. Although Kentucky allows up to two years of full-time study for TANF recipients, only one year without a work activity of at least 20 hours a week can be counted toward the federal requirements. Federal law puts a cap on the share of recipients enrolled in education without other work activities, and Kentucky has surpassed this cap a few times. In part because of this difficulty, the state put more TANF money into work study programs beginning in 2009 in order to avoid being penalized by the federal government. And Congress’ 2005 reauthorization of the welfare reform law contained onerous new reporting and documentation requirements for how TANF recipients are spending their time, forcing case managers to focus more on administrative tasks rather than assisting recipients.

Another challenge is that Congress has not increased the TANF block grant since its inception in 1996, meaning it has lost about 30 percent of its value. That’s made it harder to fund RTW and other supports paid for with TANF dollars. Because of limited money to meet the demand for RTW, the state began limiting RTW services to those actually receiving TANF cash assistance rather than the larger category of TANF-eligible students (who for various reasons may not actually be receiving a TANF cash benefit). That has decreased the number of RTW participants from around 2,500 students per year in the mid-2000s to around 1,500 a year.

The freezing of the block grant has also meant that recipients’ cash benefit hasn’t gone up since 1996, making it harder for families receiving cash assistance to make ends meet. For a family of 3, the benefit is only $429 a month, a drop of 31 percent since 1996 in real dollars. At the same time, the costs of higher education and the supports low-income people need to succeed in school are going up. State budget cuts in higher education are leading to rising tuition while only about 1/3 of those who qualify for need-based state college financial aid actually receive help due to a lack of funds. The cost of the GED is about to double to $120 at the end of this year. And the state has reduced eligibility for child care subsidies to the lowest level in the country.

The still-weak economy also makes it harder for those leaving TANF or receiving a degree to find decent employment. While during the strong economy of the late 1990s many people could find jobs that paid rising wages, now there are three job seekers for every job, and wages are stagnating or even declining. Because TANF is a block grant unlike SNAP or unemployment insurance, it also didn’t respond to the growing poverty caused by the recession through automatically providing assistance to the newly-poor.

The state took real strides over the past 15 years in making education more accessible for low-income families struggling to make ends meet. But less state and federal money for higher education and for the supports needed to succeed—in addition to increasingly stringent work participation rules for TANF in the face of an economy with too few jobs—mean Kentucky’s success is in danger of eroding.

Budget Cuts Stack Up: Kentucky Faces the Eighth Largest Decrease in Federal Grants Among States

Kentucky will receive $162 million less in federal grant funding in 2013 than it did in 2012, according to a new brief by the Economic Policy Institute (EPI). The report looks at the state-level impact of recent federal budget decisions and shows a 1.7 percent funding decrease in Kentucky, the eighth largest cut among the states.

The Budget Control Act of 2011 (BCA) cut more than $1 trillion from the federal budget by capping discretionary spending between 2012 and 2021. An additional $1.2 trillion in cuts ($85.4 billion in 2013) will happen through sequestration, the across-the-board budget cuts that are now starting to go into effect.

Sequestration was never meant to come to pass, but to serve as a motivation for Congress to reach consensus on more strategic deficit reduction. But in the absence of compromise, the across-the-board cuts began on March 1 and as it stands will persist until 2022.

For states, the BCA caps and sequestration have significantly cut federal grant funding in variety of ways. The sequester cuts Aging and Disability Services, Head Start, Housing and Rental Assistance, Unemployment Benefits, the Social Services Block Grant that helps pay for Kentucky’s Meals on Wheels program, the Childcare and Development Block Grant, the Mental Health Block Grant, and medical research among other programs.

Cuts are also being made to specific services that, although small, play an important role in Kentucky, including the following:

  • The WIC Farmers’ Market Nutrition Program provides $20 per WIC participant each summer to purchase fresh fruits and vegetables from farmers’ markets. In 2013, it will be cut by $52,000 in Kentucky, or 26.4 percent relative to 2012 funding.
  • Likewise, the Senior Farmers’ Market Nutrition Program will be cut by $40,000 in Kentucky or 12.5 percent.
  • The Juvenile Accountability Block Grant, which promotes accountability in the juvenile justice system, will be cut by $76,000 in Kentucky or 23.3 percent.
  • The Appalachian Regional Commission-Local Development Fund assists community and economic development in 13 Appalachian states. Kentucky’s program will be cut by 5.03% or $37,000 in 2013.

While most of the grants in EPI’s analysis saw a funding decrease in 2013, not all did. The Commodity Supplemental Food Program and some school lunch programs, for instance, received a boost. EPI accounts for these increases in their estimation of Kentucky’s $162 million net loss, as well as changes in funding levels to mandatory spending programs which are not attributable to the BCA. In many cases, the funding levels for those programs are determined by the number of eligible beneficiaries.

On top of the $162 million net loss to federal grants, Kentucky will also feel the effect of sequestration’s defense spending cuts. A majority of the state’s 8,756 affected civilian Defense Department employees are slated to be furloughed once a week for almost three months beginning July 8. The predicted net loss to Kentucky’s economy is $28.9 million.

In the public outcry over the sequester, some have called for more strategic apportionment of cuts to protect working-class Americans. Congress’s work to spare the Federal Aviation Administration and the relatively well-off Americans it serves has come under heavy criticism that current deficit-reduction strategies disproportionally burden low-income Americans1.

But in addition to being unfair, extreme deficit-reduction policies are unnecessary and harmful to the economy. Cuts under the BCA and others currently being proposed2 add up to “austerity,” which can further cripple a sluggish economy and hurt families already struggling to find a job and make ends meet. Besides, arguments supporting austerity are losing traction every day: the deficit has been cut, health care costs have slowed and there is no longer consensus that high debt causes slow growth.

Federal budget cuts come on top of13 rounds of state budget cuts and an unwillingness by the legislature to consider fixing the state’s revenue stream. Federal and state actions are shrinking public services when what we need is greater investment to spur faster growth.

  1. For example, both the House and Senate Farm Bills cut SNAP benefits, the House by a much larger margin which would eliminate food stamps for 2 million Americans. Analysis shows the program grew exactly as it should during the recession and is now scaling back, discrediting the claim that growth has been out of control.
  2. The House Appropriation Committee’s plan would override elements of the BCA to shift funds from domestic discretionary programs to defense and security. Even mandatory Medicare and Social Security are currently on the chopping block.

Kentuckians Face Challenges in Accessing the GED in 2014

Kentucky adults without a high school diploma will find it more difficult to earn a GED (General Education Development test credential) beginning in January 2014. Due to upcoming changes in the GED, the test will be more expensive and may be harder to access, among other challenges.

These changes are occurring because of the need to update test content and as a result of the merging of the American Council on Education (ACE), the not-for-profit organization that developed and has administered the test for 70 years, partnering with the for-profit Pearson VUE, the largest testing company in the world, to administer the test in the future.

Earning a high school equivalency diploma through the GED is an important step for many Kentucky adults toward attaining a postsecondary degree—not to mention earning higher wages—and the state has set some ambitious higher education goals to counteract its low rates of educational attainment. The changes to the GED due to go into effect in January 2014 will likely decrease access to this important credential. The state should be exploring ways to mitigate the potentially negative effects on Kentuckians without a high school diploma or GED test credential.

The upcoming changes to the GED in 2014 include:

  • Increased costs to examinees in most states: In Kentucky the cost will double from $60 to $120.
  • A computerized-only format: The paper-pencil version will only be available to those needing disability-related accommodations. Those required to take the computerized version may not have the computer skills necessary to pass.
  • Reduced availability: Because some current testing sites may lack the equipment necessary for computerized testing, the number of test sites may decline. As a result, potential test-takers could have reduced access to the GED.
  • Substantial redesign and revision: The content of the 2014 GED will address college readiness standards.

Adults who have already started completing the five tests in the current GED will be unable to retain credit with the new 2014 GED. In Kentucky, approximately 16,000 people have started but not finished the GED; if they do not complete the entire series by the end of this year, their scores will expire and they will have to start over again with the new GED in 2014.

In order to encourage these Kentuckians to complete the GED, free testing is being offered through July 31. However, the number of people who can take advantage of this opportunity is likely to be limited. For instance, those who still have more than one or two of the five subject tests to take may need a great deal of preparation in order to pass the other sections. If they are already working and/or caring for children, both the July and December deadlines may be prohibitive.

A number of states are working to reduce the burden of these GED changes on potential test-takers.

For example, rather than adopting the new GED, several states will be implementing alternative tests. New York will use the TASC test developed by McGraw-Hill/CTB. Although the TASC is the product of a for-profit organization, the cost will be only $54; both computerized and paper-pencil versions will be offered, with a gradual increase in computerization over time; and the inclusion of the state’s common core standards will be phased in to keep pace with state educational reforms.1 New Hampshire and Montana are adopting the HiSET test developed by the non-profit Educational Testing Service (ETS), with the University of Iowa’s Testing Program (ITP). This test keeps costs down and is offered in both paper-pencil and computerized formats. For states that want to avoid GED score expiration in 2014, the HiSET program also supports combined pre-2014 GED scores with HiSET scores to issue high school equivalency credentials.

Other states are moving forward with the new GED but are taking on some of the test’s cost to keep the price down for test-takers, among other measures to keep high school equivalency testing accessible. Maryland is able to keep the cost down to $45 at least temporarily through the 2014 budget, and the Maryland General Assembly passed legislation requiring the state to study alternatives to the GED. Maine already pays the full cost of the GED, including preparation costs, and will continue to do so; the state ultimately plans to pursue an alternative test but not for the next two to three years.2

Additional options for states include participating in the National External Diploma Program (NEDP), which currently operates in six states and Washington, D.C., and working to create new high school equivalency diploma options like Minnesota and Washington are doing.3

Although Kentucky is offering the GED test at no cost until the end of this month, the state is not currently seeking alternatives to the new 2014 GED or other ways of reducing negative impacts on those who need to earn a high school equivalency diploma to increase their economic opportunities and/or go on to postsecondary education.

The state should be working to help all students—including working adults—attain the basic skills and credentials needed to connect to higher levels of education and employment. This includes exploring alternatives to—and ways to mitigate the impact of—the 2014 GED. Just 27.6 percent of adults age 18-64 in Kentucky have an associate’s degree or higher, ranking the state fifth from the bottom on this measure. 13.6 percent of Kentuckians in this age group do not have a high school diploma or GED.4

  1. According to state law, those taking a high school equivalency test in New York cannot be charged for the test. If New York had gone with the new GED, which costs $120 a test, the state would probably have had to reduce the number of tests taken.
  2. Working Poor Families Project State Partners Annual Meeting, Chicago, IL, June 18, 2013.
  3. Carol Clymer, “Preparing for the New GED Test: What to Consider Before 2014,” Working Poor Families Project, Fall 2012, http://www.workingpoorfamilies.org/wp-content/uploads/2012/12/WPFP-fall-brief_2012.pdf.
  4. Kentucky ranks 38th in the nation on the share of those 18-64 who do not have a high school diploma or GED. Working Poor Families Project, Population Reference Bureau, analysis of 2011 American Community Survey.

Kentucky’s Stake in “Too Big to Fail”

The Price of Poverty 2

Kentucky’s 2013 Revenue Growth Lower than Many Other States

While current trends suggest that Kentucky’s General Fund revenue may exceed the official forecast for the year ending June 30, the state’s revenue growth is less than what other states are experiencing.

A new report by Elizabeth McNichol of the Center on Budget and Policy Priorities shows that tax revenue grew 5.7 percent through April in the median state for which data are available compared to 1.9 percent in Kentucky. By the end of May, Kentucky’s growth was still just at 2.2 percent.

Collectively, the personal income tax grew much faster than the sales tax, although Kentucky lagged behind other states in both taxes. The personal income tax grew 5.6 percent in Kentucky through April (and 5.9 percent through May), while the median state’s income tax grew 8.3 percent. Kentucky’s sales tax fell 0.9 percent though April, while the median state’s sales tax grew 2 percent.

The faster growth of income taxes compared to sales taxes can be attributed in part to rapid increase in the incomes of wealthy individuals during the recovery. As with previous recessions, the incomes of the wealthy are recovering before those of low- and middle-income Americans. A recent study shows that the incomes of the top 1 percent grew by 11.2 percent between 2009 and 2011 while the incomes of the remaining 99 percent fell by 0.4 percent.

Kentucky’s weaker income tax performance may reflect that the state has comparatively few higher-income people. In 2011, Kentucky ranked 43rd among the states in income from capital gains as a share of total income.1 Also, the state’s drop in sales tax receipts could result from a reluctance of low- and middle-income Kentuckians to purchase the goods that make up a big portion of sales tax receipts, such as appliances, furniture and clothing. Still-high unemployment and stagnant or declining wages are holding back consumers’ willingness to spend.

Revenue trends underline the critical importance of the personal income tax to an adequate state budget. As McNichol says, “states that rely more on income taxes (especially progressive income taxes, which set higher rates for higher incomes) than on sales taxes are seeing a more rapid revenue recovery.” If Kentucky had more of a consumption-based tax system with greater reliance on the sales tax, which some argue for, we’d be facing more painful budget cuts.

If revenues exceed the year’s forecast it would be good news, but it’s no time to celebrate. General Fund tax revenues are still below 2007 levels in inflation-adjusted dollars, while the demands on available money are heavy because the weak economy means many people are still eligible for low-income programs.

What’s more, McNichol says that the boost in personal income taxes this year may be inflated by some wealthy individuals shifting income into tax year 2012 they would have otherwise received in 2013 to avoid higher federal income taxes rates from expiration of the Bush tax cuts. That means more revenue for states this fiscal year, but less revenue next year.

  1. Center on Budget and Policy Priorities analysis of IRS data showing realized capital gains as a share of adjusted gross income by state.

Healthcare Reform Helps Entrepreneurs

Underfunding Also Led to Shortfall in Local Government Pensions

The pension system for Kentucky local government employees has a shortfall even though local governments have been required to make their annual payments each year. Some are using this fact to suggest that defined benefit pensions themselves must be unsustainable and shift the focus away from inadequate government contributions. But this claim misses several important points.

First, the funding condition of the local government pension system is far better than the state employees’ system, for which the legislature hasn’t made full payments for the last 11 years. The main County Employees Retirement System (CERS) account is 61 percent funded, while the main Kentucky Employees Retirement System (KERS) account for state workers is only 27 percent funded. CERS, unlike KERS, is not in danger of insolvency.

Second, the annual contributions that were charged local governments (as well as the state government) did not accurately reflect the cost of benefits. That’s in part because state law mandated that the payments be calculated without properly taking into account cost-of-living adjustments (COLAs) for retirees, even though the state regularly awarded COLAs in order to keep the real value of benefits from declining.

COLAs weren’t allowed to be part of the annual bill in the year they were awarded, but had to be added to the unfunded liability to be paid back over a 30-year period. And even though COLAs were regularly (and appropriately) given, the long-term projections assumed no additional COLAs in the future. Kentucky Retirement Systems Executive Director William Thielin told a legislative committee in January that “in six years, COLAs added about $1 billion to the unfunded liability of CERS.”

In addition, the legislature made changes to benefits in a few cases without allocating monies to pay for the cost. For example, when the retirement system was over-funded due to the stock market bubble in 2001 the legislature gave slightly enhanced benefits to state and local employees who retired by 2009. This change was made in part to move more-experienced, higher-paid employees off the public payroll in order to reduce budget pressure, but it just added cost to the retirement system.

State law and budgeting decisions thus led to the underfunding of the local, as well as the state, pension system. To avoid this problem would’ve required ongoing payment of the full actual cost at a time when lawmakers were looking for ways to balance budgets with weak revenues.

Poor investment returns in the two recessions of the last decade have also contributed to the gap in the local government pension system, but the system’s investment returns have been on par with its benchmarks and similar to other pension plans around the country. Investment losses alone wouldn’t have been enough to create a serious problem without the accompanying underfunding.

Tight budgets because of meager revenues have been the story in Kentucky for more than a decade. State law and budget practice have meant the full cost of retiree benefits was not being paid. That helped avoid a conversation about revenues, but just passed costs off to the future—and has now led to cuts to the already-modest pension benefits that Kentucky public workers will receive.

Kentucky Tax on Chewing Tobacco to Drop

Kentucky Tax on Chewing Tobacco to Drop

By Tom Loftus

A Very Bad Tax Cut