By Mike Wynn
By Greg Stotelmyer
Kentucky ranks fourteenth worst in the country in the depth of cuts to school funding since the start of the recession, and is one of fifteen states that have continued to cut K-12 funding in the current year, according to a new report released today by the Center on Budget and Policy Priorities. These damaging cuts slow the recovery and will make Kentucky less prosperous in the future.
The report shows that Kentucky has cut its per-pupil core funding for K-12 schools by 9.9 percent since 2008 after adjusting for inflation, a deeper cut than 34 other states.
Ensuring that Kentucky has good schools and an educated workforce is a critical investment in the state’s economic growth. By cutting state funding for education, we undermine our ability to educate Kentucky’s children and threaten our future.
State revenue declined sharply during the recession. But instead of addressing budget shortfalls by taking a balanced approach that includes new revenues through much-needed state tax reform, Kentucky relied very heavily on cuts to state services, including education.
Even as revenues have begun to recover, Kentucky has continued to cut education funding. From last year to the current year, Kentucky had the fifth-biggest cut to core education funding among the states, according to the report.
The report only looks at dollars allocated for states’ main formula to fund local schools, which in Kentucky is known as the SEEK program. Other state funding for Kentucky schools not included in SEEK—including monies for professional development, textbooks and afterschool programs—has been cut even more drastically.
Kentucky’s K-12 education cuts hurt the state’s economy in the short-term and also have long-term economic consequences. A strong education system is essential to creating and maintaining a thriving economy. Businesses need a well-educated workforce, and education cuts undermine the state’s ability to produce workers with the skills needed for a modern economy.
“At a time when the nation is trying to produce workers with the skills to master new technologies and adapt to the complexities of a global economy, states should be investing more — not less — to ensure our kids get a strong education,” said Michael Leachman, director of state fiscal research at the Center on Budget and Policy Priorities and co-author of the report released today.
The Center’s full report can be found at: http://www.cbpp.org/cms/index.cfm?fa=view&id=4011.
The recession and weak recovery combined with an inadequate state tax system have led to $1.6 billion in state budget cuts over the last few years. But the situation would’ve been much worse if it weren’t for Kentucky’s individual income tax and the essential role it plays in fairly generating needed revenue.
As the graph below shows, Kentucky’s economy (measured by state personal income without adjusting for inflation) has grown 19 percent since 2007. To keep government services from shrinking, revenue should more or less keep up with economic growth. But General Fund tax receipts as a whole grew only 9 percent over that period, and revenue from the sales and use tax (Kentucky’s second-biggest revenue source) grew only 7 percent. Individual income tax receipts, in contrast, grew 22 percent.
Source: KCEP analysis of Office of the State Budget Director data.
Overall, the individual income tax generated 89 percent of all of the General Fund tax revenue growth over that period. If it weren’t for the revenue recovery in the income tax, the state would’ve had to implement even more devastating cuts to education, health and human services.
Income taxes tend to rise more rapidly than sales taxes during periods of economic recovery. That is particularly true in the current recovery, where the incomes of wealthy individuals have grown substantially while low- and middle-income individuals’ incomes are stagnant.
Despite the individual income tax’s importance to a state’s tax mix, some argue for eliminating the tax—as in Tennessee or Florida—or reducing it, as North Carolina did recently. Either option would further weaken Kentucky’s ability to generate adequate revenue—already a major challenge because our tax system has too many exemptions and exclusions. In addition, it would shift tax responsibility away from the wealthy and towards low- and middle-income Kentuckians. Unlike the sales tax, Kentucky’s individual income tax is progressive, meaning those of greater means pay a higher share of their income in taxes than those less able to pay.
Those reasons are why the Governor’s Blue Ribbon Commission on Tax Reform proposed to strengthen Kentucky’s income tax, rather than shift away from it. The recommendations of the commission limit higher-income people’s ability to claim itemized deductions and the exclusion for retirement income, while also making the tax fairer by including a state earned income tax credit. In all, the proposals would increase revenue from the individual income tax by $475 million.
It’s crucial that the upcoming General Assembly address Kentucky’s need for tax reform. It’s even more important that it do tax reform right—including by protecting and strengthening the income tax’s role as the cornerstone of a fair and adequate state tax system.