By Nola Sizemore
With nearly 31 percent of Kentucky’s former inmates recidivating—returning to prison—within two years, a new policy report from the Kentucky Center for Economic Policy (KCEP) recommends that the state invest more in providing education and supports to inmates and ex-offenders to reduce the likelihood they will return to jail.
The graphic below shows that the modest revenue growth recently predicted for the first year of the next budget ($259 million) is not enough to cover even Kentucky’s most basic costs. Among the state’s many needs are: making full payments toward the state pension system, paying for inflation in health care prices, and beginning to restore some of the $1.6 billion in cuts over the last seven years to education, health, human services and other critical areas.
Click here to read more about the revenue forecast.
Real wages for Kentucky workers fell again last year, continuing a slide that began in 2001. Congress’ unwillingness to spur a stronger economic recovery and act on policies like raising the minimum wage play a big role in depressing wages.
Low wage Kentucky workers continue to see the real value of their wages erode. Inflation-adjusted wages for workers at the 10th percentile fell 1.5 percent in 2012—to $7.99 an hour—and have declined 6.5 percent since 2001. Likewise, workers at the 20th and 30th percentile have seen the purchasing power of their wages decrease over the last decade.
Kentucky workers at the median (where half of workers make higher wages, and half make lower) saw their wages fall 2.8 percent in real dollars in 2012. They’ve experienced a 7.1 percent decline since 2001.
2012 dollars; Source: Economic Policy Institute analysis of Current Population Survey data
The failure of federal action to spur faster economic growth is a big cause of wage losses. Continued high unemployment means there are still three job seekers for every job, putting little pressure on businesses to raise wages in order to attract workers. In contrast, unemployment was very low in the late 1990s and early 2000s and employers had to pay higher wages to compete for fewer available employees.
At the Consensus Forecasting Group meeting in Frankfort this week, the governor’s chief economist noted continued uncertainty about the economy because the “engine of economic growth is yet to be identified.” The three main engines of the economy are consumer spending (which is the biggest), government spending and business investment. Consumer spending is weak because without job and wage growth people don’t have money in their pockets to spend; cuts in government spending are harmful because they directly eliminate jobs; and businesses aren’t investing because they don’t see consumer demand for their products and services. What’s needed is more short-term federal investment to spur faster job growth.
Additionally, raising the federal minimum wage to $10.10 an hour, as Sen. Tom Harkin and others have proposed, would either directly or indirectly lift the wages of over one in four Kentucky workers. If the minimum wage had kept up with the average workers’ wage growth over the last four decades, it would be $10.50 an hour rather than $7.25. Decreases in unionization also play a big role in workers’ wage declines, as does the elimination of good-paying manufacturing jobs. While those jobs disappear, the new jobs being created tend to pay low wages.
By Jason Cherkis
Kentucky ended fiscal year 2013 with a $70.6 million surplus in the General Fund – about $30.6 million from lower-than-expected spending in a few areas and $40 million from revenue growth that slightly exceeded expectations. It’s a bit of good news, but put into context, not nearly good enough.
Growth is Weak and Inadequate
The reported surplus itself is very small, amounting to only 0.7 percent of Kentucky’s General Fund budget. But $45 million of it is not really a surplus at all, as it’s needed to pay for expenses that were incurred during the year but not budgeted for, including the cost of a higher-than-expected prison population and the cost of cleaning up natural disasters. That leaves an actual surplus of only $25.6 million. By law that will go to the state’s rainy day fund, which provides a crucial safety net in hard economic times. But that will bring the rainy day fund up to only one percent of the budget, while experts recommend a fund of 15 percent or greater to properly prepare states for recessions.
While revenues slightly beat the forecast, it was a forecast that expected revenue growth to be slow. Tax receipts increased just 2.3 percent for the year with total General Fund revenues growing 2.8 percent. Revenues remain below where they were in 2007 in inflation-adjusted dollars. The story would’ve been worse if it wasn’t for the temporary tax amnesty program that the state carried out this year, which generated $58.6 million according to the Department of Revenue1. That money won’t be recurring next year.
Continued high unemployment and weak consumer demand resulted in a decline in sales and use tax receipts by one percent, or $30.4 million. More than 80 percent of the state’s revenue growth was from the individual income tax. Corporate income tax receipts also grew by 7 percent, or $26.4 million.
The small surplus does nothing to roll back the seven consecutive years of budget cuts still locked in place. Totaling $1.6 billion, these cuts have reduced services at public schools, led to continued tuition increases at universities and community colleges, and cut many programs in health, human services and other areas by 15 to 40 percent.
Outlook is Troubling
Budget prospects are not good moving forward. The year-end revenue results confirm substantial problems with Kentucky’s tax system. In addition to weak consumer demand, the decline in sales tax revenue can be attributed in part to a narrow base that includes too few services. The state is also over-reliant for ongoing revenue on sources that are stagnant or even in decline, such as the coal severance tax—which declined 23 percent due to a drop in demand for eastern Kentucky coal—and the cigarette tax—which fell 6 percent.
Federal budget cuts will also exacerbate the state’s budget woes. In presentations to the Joint Interim Appropriations and Revenue Committee recently, the Department of Education and the Cabinet for Health and Family Services outlined how their own budgets – already pushed to the limit by state cuts– will be affected by sequestration. Title 1 funds, which provide interventions for at-risk students in schools with a certain percentage of children from low-income families, will be cut by $10.5 million in the coming school year. Special education will be cut by $8.1 million2. The Cabinet for Health and Family Services will suffer a total loss of $8.3 million in 2013, and between $17.7 and $18.4 million in 2014. Because the Taxpayer Relief Act of 2012 delayed and reduced the sequester’s effect in 2013, 2014 will be even more austere for affected programs3.
A still-weak economy is an additional challenge. Sequestration and other federal budget cuts harm an already-slow recovery. Monthly job growth in Kentucky remains modest, putting off full recovery until the end of the decade at current rates of employment growth. What job growth is happening tends to be in low-paying jobs, and wage growth overall is weak. Those trends impede Kentucky’s revenues and mean ongoing high demand for programs like Medicaid. Currently, the state expects revenues to increase only 1.1 percent over the first three quarters of the new fiscal year.
A conversation about raising more revenue in a way that is fair—starting with consideration of the recommendations of the governor’s blue ribbon commission on tax reform—must happen in order for Kentucky to advance.
- Presentation to the Interim Joint Committee on Appropriations and Revenue, July 25, 2013 ↩
- Terry Holliday, et al, “Sequestration and Kentucky Education,” Interim Joint Committee on Appropriations and Revenue, July 25, 2013. ↩
- Beth Jurek, et al, “Impacts of Federal Sequestration on the Cabinet for Health and Family Services,” Interim Joint Committee on Appropriations and Revenue, July 25, 2013. ↩
875,000 Kentuckians Will See Cuts to Food Assistance This Fall
875,000 people in Kentucky will see a cut in their food assistance benefits this fall, when a temporary boost to the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) is set to expire, according to new data released by the U.S. Department of Agriculture (USDA) discussed in a report from the Washington, DC-based Center on Budget and Policy Priorities.
All of the more than 47 million Americans, including 22 million children, who receive SNAP will see their food assistance reduced when a modest boost in benefits to SNAP recipients that policymakers included in the American Recovery and Reinvestment Act (ARRA) expires on October 31. For a family of three, that cut will likely mean a reduction of $29 a month—$319 for the remaining 11 months of the fiscal year. This is a serious loss for families whose benefits, after this cut, will average only about $1.40 per person per meal.
“This may seem like the loss of a small increase in SNAP benefits, but it has made a big difference in the lives of 875,000 Kentuckians,” said Ashley Spalding, Research and Policy Associate at the Kentucky Center for Economic Policy. “This modest food assistance is enabling families to stay afloat during the worst economic crisis since the Great Depression.”
In addition to helping to feed hungry families, SNAP is one of the fastest, most effective ways to stimulate a struggling economy. Every $1 increase in SNAP benefits generates about $1.70 in economic activity.
The across-the-board cuts scheduled for November will reduce the program by $5 billion in fiscal year 2014 alone.
Spalding continued, “These SNAP cuts will affect all participants, many of whom are children and elderly Kentuckians. Given the fact that benefits are already inadequate for many families—and the majority of SNAP participants who can work are already working—these cuts will be particularly painful.”
On top of these across-the-board cuts to the program, the U.S. House of Representatives recently considered legislation that would have cut $20 billion from SNAP, eliminating food assistance for nearly two million people and providing strong financial incentives to states to reduce their caseloads. The House voted to reject the proposal, but could consider additional cuts to the program again in the coming weeks.
“At a time when 1 in 6 Kentuckians do not always know where their next meal will come from, the boost to the SNAP program has helped hundreds of thousands of families in the Commonwealth stay afloat,” stated Tamara Sandberg, Executive Director of the Kentucky Association of Food Banks. “Yet food banks in Kentucky still face skyrocketing demand for food assistance. There is no way food banks can meet the increased need for food assistance that will result from a reduction in SNAP benefits to families. Food banks need more supply, not more demand.”
The Center on Budget and Policy Priorities’ full report can be found at: http://www.cbpp.org/cms/index.cfm?fa=view&id=3899
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).