“New Americans in Kentucky” Are Diverse and Contribute Substantially to State’s Economy

immigrantsprofileKentucky’s immigrants are a diverse, rapidly growing population that contributes to the state’s economy at a rate consistent with or even exceeding their share of the state’s overall population, according to a new report by the Kentucky Center for Economic Policy. But in the absence of immigration reform, these Kentuckians face barriers that have implications for the entire state economy.

The report, “A Profile of New Americans in Kentucky,” uses data primarily from the U.S. Census Bureau to paint a picture of immigrants in Kentucky and their role in the workforce and economy. Among the report’s findings are:

  • Kentucky’s immigrant population is small compared to other states but grew at a faster rate than all but six states in percentage terms between 2000 and 2012.
  • Immigrants are well-represented across the state’s workforce and occupations.
  • More than one in three are naturalized citizens, many others are legal residents (refugees, students and workers, for example), and estimates range from 50,000 to 80,000 on the number of immigrants who are in Kentucky without authorization.
  • Kentucky’s immigrants are ethnically and racially diverse, having come to the U.S. and to Kentucky from all around the world.

“Our public dialogue tends to cast immigrants as a separate, homogenous group but in fact they are people from all walks of life who are already at home in our Kentucky communities, who already contribute significantly to our economy and pay taxes to support the public good,” said Anna Baumann, policy associate at KCEP. “We need to better understand the diversity of Kentucky’s immigrants and the barriers they face in order to create policies that benefit us all.”

Compared to U.S. born Kentuckians, immigrants are overrepresented among those with less than a high school diploma as well as those with a bachelor’s degree or higher. Immigrants are more likely than other Kentuckians to be small business owners—one in 33 Kentuckians are immigrants, but one in 20 small business owners are. However, the overall poverty rate for immigrants is higher than U.S. born Kentuckians. Low-income immigrants are paid less than U.S. born citizens in the same income category as a result of many factors including their overrepresentation in occupations where wage theft is common and in sectors where employers are more likely to pay unauthorized immigrants low wages, including under the table.

“A level playing field between employers who pay illegal wages and those who play by the rules is just one example of how immigration reform would make our economy fairer and stronger,” said Baumann. “When our neighbors are paid fairly and can spend to meet their families’ needs—and when unscrupulous employers can no longer suppress wages and avoid paying taxes by exploiting a particular group–our local economies and communities benefit.”

About one in three Kentucky immigrants are Hispanic, yet the majority of Hispanic Kentuckians (60 percent) were born in the U.S. The top five most common countries of origin are Mexico, Germany, India, Cuba and Japan. More than half of Kentucky’s immigrants speak English very well or speak only English, and there are 116 languages spoken by “Limited English Proficient” public school students in Kentucky.

For more information about immigrants in Kentucky, the full profile is accessible here: “A Profile of New Americans in Kentucky.”

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A Profile of New Americans in Kentucky

immigrantsprofileKentucky’s immigrants come from all over the world and are broadly represented throughout the state’s workforce and economy. But the controversy in the U.S. around immigration reform, which often eclipses a fuller conversation about immigrants, tends to paint them as a homogenous group.  The conversation ought to reflect an informed understanding of this dynamic population, its diverse contributions to the economy and the challenges immigrants face.

New Americans in Kentucky

What’s Behind the State’s Revenue Shortfall?

Now that Kentucky has ended its 2014 budget year, the governor’s office will announce how big the state’s year-end revenue shortfall is sometime in the next two weeks. It’s expected to be “significantly larger” than the $27.7 million shortfall officials projected this spring.

Eleven months into the budget year, the main revenue source to fall short of expectations is the individual income tax. From July 2013 through May 2014, it grew only 0.5 percent, much less than the projected growth rate of 2.4 percent. That makes a big difference to total revenue collections, since the individual income tax is the largest source of state General Fund revenue, responsible for about 40 percent of what Kentucky collects.

Other taxes are also factors in the pending shortfall. Property taxes are falling short of expectations. Coal severance taxes, cigarette taxes and lottery revenues are slightly below where they were expected to be. Corporate income taxes are significantly above what was projected, but limited liability entity taxes (another corporate income tax) are far below expectations, making corporate taxes as a whole reasonably close to the estimate. Sales taxes are doing somewhat better than projected.

But the individual income tax is where the main challenge seems to lie. We’ll know more about what happened once the state releases final numbers and more detail is shared with the General Assembly over the next month or so.

We already know, however, that weaker-than-expected individual income tax revenues are showing up in many states this year, according to a recent report by the Nelson A. Rockefeller Institute of Government at the State University of New York. The authors say that last year’s income tax revenues were artificially inflated because of a timing issue having to do with federal tax law changes. That issue created a one-time bump in revenues for 2013 that were shifted from 2014.

The specific timing issue goes back to December 2012, when Congress was facing the “fiscal cliff”—the name given to the showdown over the expiration of the Bush tax cuts and other measures. Among the tax cuts that were set to expire was a lower rate on capital gains—investment income received from the sale of assets like stocks and real estate. The uncertainty around what would happen with the negotiations provided an incentive for individuals to realize the income from the sale of capital gains in tax year 2012—which corresponds to states’ 2013 fiscal year—when the rate was still lower.

Many wealthy individuals around the country appear to have taken such action. Since they claimed more capital gains income in 2013, states’ income tax revenue for that year was artificially increased—but at the expense of income tax revenue in 2014.

Did such shifting happen in Kentucky? We’ll know more when officials report on year-end results. But state income tax revenue in Kentucky grew by an impressive six percent in 2013. And the Rockefeller Institute report says that Kentucky was one of four states with more than a 30 percent drop in estimated income tax payments (which high-income people pay on investment income) for January through April of 2014 compared to the prior year.

Granted, the report also notes that Kentucky has less income from capital gains than most states; capital gains make up 2.58 percent of state adjusted gross income compared to 4.09 percent for the U. S. as a whole. Kentucky ranks 30th among states in the report’s measure of how dependent states’ income taxes are on capital gains.

A shortfall in income tax revenues for 2014 has implications down the road. As mentioned, the state’s revenue forecast assumed 2.4 percent individual income tax growth in 2014, while growth so far equals only 0.5 percent. Going forward, the state’s two-year budget is built on the forecast’s assumption of even faster income tax growth in 2015 and 2016—4.3 percent and 4 percent respectively. Growth will have to be even stronger than that to make up for this year’s income tax shortfall, or the gap will have to be made up in better-than-expected growth in other tax revenues.

There’s certainly more to learn about the causes of the shortfall and possible solutions, but there are reasons to be concerned about Kentucky’s ability to generate the revenues needed to balance the budget.

Why Kentucky Is Especially Vulnerable in Revenue Shortfall

Kentucky ended its 2014 budget year on June 30, and we will soon hear a final tally on the size of the state’s revenue shortfall. This spring, officials had predicted a shortfall of $27.7 million. But worse-than-expected receipts in April and May led the state budget director to announce last month that a “significantly larger shortfall” is likely. If the revenue growth rate for the year equals the 1.1 percent rate for the first 11 months, the shortfall would be closer to $100 million.

What that ultimately means for Kentucky’s budget also depends on how the spending side of the budget turns out, including the impact of any cost overruns that are allowed but not budgeted as well as what amount, if any, agencies spent under what was budgeted.

But if a deficit does result, Kentucky will find it especially difficult to craft an easy solution because of past budget decisions. Inadequate revenues and an unwillingness to address tax reform have meant a lean budget whose holes are plugged using a variety of extraordinary measures. Among the challenges are the following:

New budget depends on $80 million carrying forward
The original 2014 state budget as enacted assumed no budget balance at the end of 2014. When the General Assembly met in the 2014 session to craft a new budget for the next two years, it revised the 2014 budget to assume an $80 million balance at the end of the year (in part because of expected revenues higher than originally estimated and reductions in appropriations). The new budget then spends that money so that 2016 ends with a balance of $0. A revenue shortfall this year could threaten that $80 million, meaning the General Assembly would have to make up those funds through faster revenue growth or additional cuts in the next two years.

Kentucky’s rainy day fund has already been tapped, and is small
One option for the state to deal with the revenue shortfall would be to tap the state’s Budget Reserve Trust Fund (known as the “rainy day fund”), which is intended to help bridge the gap in hard times, particularly recessions. However, the budget already substantially draws from the rainy day fund even though Kentucky’s economy is in recovery. The rainy day fund had a balance of $122 million going into 2014, but will stand at only $85 million at the end of 2016, a decline of $37 million or 30 percent in just three years. At less than 1 percent of the state budget, it has far less than experts say is needed to help states prepare for economic downturns. While now is not the time to prioritize replenishing the fund given the state’s ongoing revenue challenges, continuing to deplete the fund creates future vulnerabilities.

The budget has been cut dramatically
State services have endured 14 rounds of budget cuts since 2008, and many areas have been cut 15 to 40 percent or more. The most recent budget cuts many services by 5 percent, higher education by 1.5 percent and state police by 2.5 percent. Even most of those areas that got additional monies, like K-12 education and raises for state workers and teachers, received just enough to keep up with inflation the next two years but not enough to gain back ground that was lost from the recession.

Fund transfers are already substantial
The new budget is balanced with $302 million over two years in transfers to the General Fund from restricted funds—monies intended for other purposes in state government. That’s more than the $201 million in transfers used in the last two-year budget. Among the transfers are $93 million from the public employees’ health insurance fund and $11 million out of the lottery as well as money from licensing boards, land conservation and petroleum storage tank clean-up. It’s unclear what—if any—other restricted funds are available to address the new budget shortfall, but if utilized they will impact those funds’ intended uses.

Revenue growth for new budget will need to be stronger than expected
A revenue shortfall in 2014 would hit the 2015 and 2016 budgets in another way—it would mean the state needs stronger revenue growth for the next two years than was expected when the forecast was created. That’s because the base upon which those forecasts were made is lower than originally estimated. For example, if General Fund revenue growth for 2014 is 1.1 percent for the year rather than the 2.2 percent that was projected, that means growth for 2015 would need to be 3.7 percent rather than the 2.6 percent that was projected in order to catch up. If that growth didn’t happen, more budget cuts would need to be made or resources would have to be found.