Kentucky’s School Funding Cuts Among the Nation’s Deepest

k12_state_template-KY2014Kentucky ranks 11th worst among 47 states in the depth of cuts to school funding since the start of the recession, according to a new report released today by the Center on Budget and Policy Priorities, a non-partisan policy research organization based in Washington, D.C. Kentucky has cut per-student investment in K-12 schools by 11.4 percent between 2008 and 2015 once inflation is taken into account.

Although the state budget that passed earlier this year included some more money into the SEEK funding formula for K-12 schools, the additional resources translate to just a $37 increase per student in 2015. That allows school systems to tread water but not make up ground lost in the recession, and puts Kentucky far behind most other states when it comes to reinvesting in education.

“A well-educated workforce is critical to economic growth in Kentucky,” said Ashley Spalding, Research and Policy Associate at the Kentucky Center for Economic Policy. “We need greater investment in schools to support the state’s economic growth and ensure that our children receive the education they need to succeed in life.”

The report compares funding levels between states in their core funding formula for local schools, which in Kentucky is known as SEEK. State funding through SEEK has been relatively flat since 2008, but this translates into cuts once inflation is taken into account. Kentucky’s spending per student is $561 below pre-recession levels after accounting for inflation.

Lack of adequate investment in schools has long-term economic consequences. Quality elementary, middle, and high school education provides a crucial foundation that allows children to go on to succeed in college and in the workplace.

Budget cuts are being felt especially hard in the state’s poorer school districts, which find it more difficult to make up for funding losses with local sources. That’s leading to growing inequality between rich and poor districts in Kentucky. As the report shows, the lack of state funding is made worse by the cuts in federal funding; since 2010, federal spending for Title 1 (the main assistance program for high-poverty schools) is down 10 percent after adjusting for inflation and funding for special education is down eight percent.

“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.

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The Center’s full report can be found at: http://www.cbpp.org/cms/index.cfm?fa=view&id=4213.

What the Research Says About Minimum Wage Increases

While Louisville considers whether to increase its minimum wage in the face of federal and state inaction, there’s no question that many thousands of low-wage workers stand to benefit. But some are claiming that the city will also suffer from harmful job loss were it to take this action.

You often hear opponents claim that minimum wage increases will result in meaningful declines in employment. However, that’s based on outdated theories about the minimum wage that don’t match where much of the best empirical research has been pointing. As noted in a recent review of the literature, “economists’ understanding of minimum wage effects has undergone significant changes over the past 20 years.”

An influential study in 1994 led to a new wave of research on the subject; that paper looked at employment in fast food restaurants close to the New Jersey-Pennsylvania border after New Jersey passed a minimum wage increase, and found no measurable negative effect on jobs. The study was later generalized to nearly 300 bordering counties in states where one state had raised its minimum wage, and again no statistically significant negative effect was found. An analysis of 64 published academic studies containing 1,500 estimates of the impact of minimum wage increases found the bulk of the estimates clustered around employment effects of zero or near-zero.

As a result of this and other research, 600 economists including seven Nobel Prize winners and eight former Presidents of the American Economic Association recently signed a letter urging action to raise the minimum wage to $10.10 an hour (as proposed in the Louisville Metro Council), noting that “the weight of evidence now show[s] that increases in the minimum wage have had little to no negative effect on the employment of minimum-wage workers.”

There’s growing recognition that minimum wage increases do not automatically mean less employment because businesses can and do utilize a number of channels of adjustment in response to increases besides layoffs. The evidence suggests that the most common channels are the cost savings and increased productivity associated with lower labor turnover as a result of increased wages, improvements in organizational efficiency, reductions in wages of high earners and minor price increases.

While the research on local minimum wage laws is necessarily limited because only 14 cities or counties have passed such laws, many of them recently, there are three rigorous studies of their employment impacts:

  • Dube, Naidu and Reich surveyed a sample of restaurants in and outside of San Francisco before and after the city’s minimum wage increase in 2004 and found “no statistically significant negative effects on either employment or the proportion of full-time jobs as a result of the San Francisco law.”
  • Potter compared employment in Santa Fe before and after its 65 percent increase in the minimum wage in 2004 (from $5.15 to $8.50) and compared it to nearby Albuquerque. Potter also “found no statistically significant negative impact. . . on Santa Fe employment, both at an absolute level and relative to Albuquerque.”
  • Schmitt and Rosnick analyzed the impact of these two cities’ laws on a variety of fast food, food services, retail and broader low-wage establishments—as well as firms of different sizes—and “found no discernible negative effects on employment, even three years after the respective ordinances were implemented.” This study also compared the cities to control groups of nearby suburbs and cities.

But what about that Congressional Budget Office (CBO) study saying the minimum wage would eliminate half a million jobs? A lot’s been said about that report, much of which is misleading.

CBO picked an employment impact estimate that is higher than a large and growing body of research says is likely. Even given that, CBO didn’t say that 500,000 people would lose their jobs; these are typically high-turnover positions, meaning any reduction would most likely happen primarily through attrition. CBO also put potential job loss in a range from a little over zero to 1 million, meaning they acknowledged the possibility of practically no job loss at all.

More importantly, CBO also said that 24 million low-wage workers stand to benefit from the proposed increase, including 16.5 million who otherwise would make less than $10.10 an hour and another 7.6 million who would make up to $11.50 but who stand to benefit from a ripple effect. That means CBO thinks 98 percent of those workers who are affected would be winners. CBO also detailed how the proposed minimum wage increase will help mostly adults and low-and middle-income families, reduce poverty and stimulate the economy when workers spend the extra wages.

Can anyone guarantee that there would be no fewer jobs as a result of a minimum wage increase? Of course not.

But it’s clear that many low-wage workers who struggle to afford the basics would get help. And views of the minimum wage among experts are changing because of the strength of evidence suggesting job loss is small or non-existent. It’s important that the conversation in Louisville take account of what that new research says.

Experts Continue to Debate Louisville Minimum Wage in Letters to Metro Council

Op-Ed: Increasing Louisville’s Minimum Wage Would Help Address Tale of Two Cities

Published in the Louisville Courier-Journal on October 12, 2014

Soaring income inequality is increasingly the story of our economy and Metro areas like Louisville are becoming a tale of two cities. In 2012, the average income of the richest 5 percent of Louisville households was over $260,000, while the poorest 20 percent averaged just $9,000.

The U.S. Conference of Mayors recently released a report calling widening income inequality “an alarming trend that must be addressed,” saying that “the nation’s mayors have an obligation to do what we can to address issues of inequality in this country while Washington languishes in dysfunction.”

One way a growing number of cities are acting is by increasing their minimum wage. To date, 14 U.S. cities and counties have raised their minimum wage above their state’s minimum, joining 25 states plus the District of Columbia that now have a higher minimum than the federal floor of $7.25. Louisville Metro Council members recently introduced an ordinance to increase the minimum wage here.

Localities are taking action because the federal government has let the real value of the minimum wage erode over time. It’s now worth 25 percent less than it was at its peak in 1968.

That’s made the gap grow between the minimum wage and what it takes to afford the basics like housing, gas, child care and other necessities. A family of four in Louisville needs about $61,000 a year for a “secure yet modest” standard of living, while a family of two needs $43,000, according to a national study. But a full-time, year-round minimum-wage worker makes only about $15,000.

As a result, more than half of all fast food workers around the country rely on food stamps and other public benefits to make ends meet.

Those workers at the bottom — who often work in restaurants, retail stores and motels — have little control over their wages because they lack adequate bargaining power with their employers. So worker productivity, profits and incomes at the top rise even as wages at the bottom remain stuck.

My organization recently produced a report analyzing who in Louisville would benefit from increasing the minimum wage to $10.10 an hour over three years, as proposed by Metro Council members.

Using U.S. Census data, we estimate that 22 percent of workers would get a raise, including 16 percent who would otherwise make less than $10.10 and another 6 percent who make slightly above $10.10 but are also likely to get a small increase when the floor is raised. That’s 62,500 workers who would benefit directly and another 24,800 indirectly.

Contrary to common assumptions, these workers are overwhelmingly adults, not teenagers. Ninety-two percent are at least 20 years old. In fact, more workers over the age of 50 would benefit than teens. Sixty-three percent of those who would benefit work full time.

Also contrary to the claims of opponents, minimum wage increases are a big help to workers who live in poverty and near-poverty. Seventy-seven percent of workers whose family incomes are below the poverty line would benefit, along with 53 percent of workers whose family incomes are a little above poverty but are still considered low-income. Most of the beneficiaries are women. And an estimated 3,300 veterans would get a raise.

Minimum-wage increases are often met with claims about big job loss. But a growing body of research shows that reasonable minimum-wage increases have little to no negative effect on employment, including at the local level.

Rigorous studies of minimum-wage increases in Santa Fe and San Francisco found no statistically significant negative effects on jobs or hours worked, as have studies of bordering counties between states after one state raises its minimum wage.

The fact is that employers save money through reduced employee turnover due to higher wages, and many businesses benefit from the extra spending in the local economy by workers who get a raise. A higher minimum wage also levels the playing field for businesses that already believe in paying adequate compensation, allowing them to compete fairly with profitable corporations that keep wages down.

For Louisville to prosper, more of its jobs must be economy boosting, not economy busting. Lifting the wage floor is a key way to help workers, families and the city as a whole.

Jason Bailey is director of the Kentucky Center for Economic Policy (KCEP), a nonprofit, nonpartisan institute that conducts research, analysis and education on important issues facing the Commonwealth.

Energy Future Contains Risks But Also Opportunities for Kentucky

KCEP Director Jason Bailey made the following remarks on the panel “EPA’s Carbon Pollution Rules and Kentucky” at the 2014 Governor’s Conference on Energy and the Environment:

As we talk about this issue, it’s important for us to keep in mind that the energy context around us is changing in ways that are likely to be permanent. Kentucky is in a special position that creates certain vulnerabilities for us but also new opportunities. But those risks grow and those opportunities fade the longer we delay action. Our challenge is to develop a stance that is realistic, constructive and forward thinking. Otherwise we run the danger of further harm to our economy and quality of life not to mention the fate of future generations as it relates to the issue of climate change.

The proposed new rules on greenhouse gas emissions for existing power plants are simply the newest and latest—but not the first or the biggest—pressure on our existing energy system. Kentucky’s energy sector has never been static, but has been changing for a long time due to a number of forces—geologic, economic, technological and governmental—that will continue regardless of action on climate change.

Kentucky is a coal state, having been heavily reliant on coal for electricity and with pockets of the state historically dependent on mining for employment. Right after World War II, Kentucky coal mines employed about 75,000 miners. That’s about six times more miners than are employed today and roughly 13 times more as a share of the entire Kentucky workforce. Though there have been booms in subsequent years, the general trajectory since then has been decline as far as employment, driven largely by mechanization of the industry. Even as jobs went away, coal production continued to rise until 1990. Since then, production in the eastern part of the state has been steadily and sharply declining, driven in large part by its rising cost of extraction due to diminishing coal reserves in the region.

In recent years, that decline has been accelerated by cheaper alternatives including natural gas in particular but also inexpensive and abundant coal from the west, steadily growing renewable energy use and the phase-in of a variety of environmental laws. A counter trend to decline has been the consistent rise in production of western Kentucky coal since the early 2000s after power plants installed scrubbers that made that coal competitive again even with its high sulfur content.

Regardless, a combination of forces is making the Kentucky energy economy increasingly vulnerable in ways that suggest a need for risk mitigation. The reality is that while Kentucky electricity prices were 58 percent of the U.S. average in 2001, they were 75 percent in 2013—before any rules about greenhouse gas emissions go into effect.

While the future will be different than the past, there is an opening for us here. We have left significant untapped potential on the table that we can begin pursuing now both to hedge our risk in the future and to create more opportunities for Kentuckians in the short- and medium-term. And there are activities already happening in Kentucky that we can build on, strengthen and call for greater investment to expand.

A few points:

New EPA rules create flexibility for Kentucky in meeting the new standards and are less stringent here than in other places.

Kentucky asked for and received special consideration and flexibility in the new greenhouse gas rules. The rules take into account a state’s existing energy mix and its potential for new energy sources in setting different standards for states. While 30 states will have to reduce their emissions rate by more than 30 percent under the proposed rules, an 18 percent decline is expected in Kentucky, a lower percentage decline than in all but five states. Its allowable emissions rate in 2030 will be higher than all but two states.

The expected renewable energy generation for Kentucky in 2030 built into the rule’s calculations is no more than what other states in the South are already producing. The expected energy efficiency gains of 1.5 percent reductions per year are middle of the pack levels of effort, not what the leading states are already achieving today. And the rules give states flexibility in terms of how the new standards are met.

Kentucky has real untapped potential especially in energy efficiency but also in new renewable energy sources that are labor-intensive and cost-effective.

Kentucky ranks 39th among the states in the 2013 State Energy Efficiency Scorecard produced by the American Council for an Energy Efficient Economy, a drop of three spots compared to 2012. We are achieving electricity savings of only 0.25 percent of retail sales in the most recent year, about 40 percent of the U.S. average. The top 14 states are achieving more than four times that amount, including Ohio and Pennsylvania. Kentucky’s utilities are also spending only one-third of the U.S. average on energy efficiency programs, compared to a U.S. average that is three times higher. The top 12 states are spending four or more times as much as Kentucky.

The good news is that beginning to increase energy efficiency and expand renewable energy production requires workers. A 2012 study by Synapse Energy Economics for my organization found that increasing renewable energy to 12.5 percent of our portfolio and achieving about 10 percent savings through energy efficiency efforts would create a net 28,000 jobs at the end of 10 years. The study also estimated that while electricity will be more expensive under any scenario, rates will be 1 percent less and average bills 8-10 percent less than would otherwise be the case.

There are already exciting examples on the ground and options out there that can begin moving us forward.

At MACED, we have been partnering for the last couple of years with several East Kentucky Power distribution coops to offer what we call the HowSmartKY energy efficiency program. The program allows homeowners to finance energy efficiency improvements of their homes without putting any money down and without a credit check. The costs of the retrofit are paid back on a homeowner’s electricity bill.

So far through that program, we have done around 400 assessments and 160 retrofits in eastern Kentucky. Homeowners who have gone through a retrofit are saving about 20 percent on average on their electricity bills. Their homes are also becoming healthier, safer, more comfortable and more valuable. We have four coops participating, a fifth has applied to join and the program has received a permanent tariff through the Public Service Commission.

We also operate commercial energy efficiency programs and are seeing lots of examples of easy savings in warehouses, grocery stores and retail in areas like lighting, refrigeration and building envelope improvements. We’ve retrofitted more than 100 such facilities since 2008.

The state is also seeing advances in renewable energy utilization since adopting net metering legislation almost a decade ago. Utilities including the Berea Utilities’ Solar Farm and Grayson RECC are starting to experiment with renewable energy, and facilities like Fort Knox and Fort Campbell are adopting renewables—Fort Campbell having just announced the largest solar array in the state.

In addition, Kentucky has the beginnings of the energy policies needed to support greater action. As mentioned, we have had a net metering law for nearly a decade. Because of the Tennessee Valley Authority (TVA), there are generous incentives for solar for those parts of the state in which there is TVA power. We allow utilities to recover lost revenue associated with energy efficiency programs. We’ve put policies in place to improve efficiency in government buildings. We have tax credits for energy efficiency and investments in renewable energy. Through the Saving Our Appalachian Region (SOAR) process, we are beginning a vital conversation about how to diversify and transition the eastern Kentucky economy given the decline of coal.

But there is more we can do:
• The cap on tax credits that can be received is low and the credits expire at the end of 2015 unless reauthorized by the legislature.
• The net metering law has a very low cap on the size of installations, hindering some businesses from participating.
• Programs like HowSmart that allow on-bill financing (including Property Assessed Clean Energy (PACE) programs, which works similarly through property tax bills) could be significantly grown and expanded.
• We could do more to encourage combined heat and power applications with small- and medium-size manufacturers.
• We could work to more aggressively replace highly inefficient mobile homes with energy efficient options.
• We could join 29 other states in setting a portfolio standard to guide gradual increases in renewable energy utilization and energy efficiency improvements.
• And we could do much more to invest in new job-creating ideas that are coming up through the SOAR process, and calling on the federal government to substantially invest in that region out of recognition of the debt that is owed for its role in helping power the American economy in the past.

There is much at stake in the energy transition that is happening in our state and country. While there is risk, there are also gains to be made.

Experts Offer Range of Predictions About Louisville Minimum Wage