Kentucky Weak in Some Aspects of Poverty and Opportunity, Strong in Others

A new report from the Center for American Progress (CAP) ranks how well the states have addressed the problems facing low-income families through 16 indicators. Kentucky’s results are mixed, with high school graduation rates, available affordable housing, the gender wage gap and health insurance coverage putting Kentucky ahead of most other states, but the state falls behind most of the rest of the country in 12 other indicators.

Back of the pack:

  • Kentucky ranks 48th out of the states and DC for food insecurity. Between 2012 and 2014, 17.5 percent of households in Kentucky experienced difficulty affording enough food at some point.
  • It ranks 47th in the country for the poverty rate; nearly one in five Kentuckians lives below the federal poverty line, or $24,000 for a family of four. One in four children live below the poverty line, putting Kentucky at 42nd in that category.
  • When it comes to the reliance on high-risk forms of credit to make ends meet, Kentucky ranks 40th, because 8.9 percent of Kentuckians had to rely on risky products like payday loans, rent-to-own, or pawning to make ends meet.

Front of the pack:

  • For every 100 renters who made 50 percent or less than the area median income, there were 77 available apartments they could afford.
  • Kentucky ties for 10th place in high school graduation rates with 6 other states. In the 2012-2013 school year, 86 percent of high school students graduated on time. This is in stark contrast, however, to the 34.8 percent of adults aged 25-34 who have a degree in higher education, placing the state among the bottom 10 in the country.
  • Recent leaps Kentucky has made in health care coverage were highlighted as a model in the report. The Commonwealth has the 11th lowest uninsured portion of its population in the country. With a successful state exchange and expanded Medicaid enrolling nearly half a million people, the 2014 uninsured rate was 14.9 percent (a number that has continued to fall), far below the national average that year of 23.2 percent.

The report gives a good glimpse at how Kentucky is addressing the needs of its most vulnerable citizens. Because of policy changes in health care and education, the Commonwealth has become a leader in the nation in some ways; these improvements should be protected and reinforced. However, recent rollbacks in programs like the Supplemental Nutrition Assistance Program (commonly known as food stamps), failure to raise the statewide minimum wage, lax regulation on predatory lending practices, a decade of disinvestment in higher education, and jeopardized healthcare gains continue to strip away the opportunity for low-income families to prosper.

Cuts to Adult Education Would Decrease Access to GED Credential

The cuts in the governor’s budget proposal would hit Kentucky Adult Education (KYAE) hard — reducing Kentuckians’ access to the supports needed to prepare for and pass the GED test. GED diploma attainment is a critical economic development issue, and the state has faced dramatic declines in GED graduates in recent years.

Adult education is essential to boosting educational attainment in the state, which can mean greater employment opportunities, increased earnings and the capacity to contribute more in taxes. Yet in 2013, 360,830 working age Kentuckians – 13.1 percent – did not have a high school diploma or equivalency credential, ranking Kentucky 37th in the nation on that measure.

While the state has made some gains in GED credential attainment through the years, more recently Kentucky’s GED graduation rates have dropped dramatically — in large part because of the implementation of a new version of the test two years ago, which is more difficult, among other challenges. KYAE and local adult education providers have worked to mitigate potential negative impacts of the new version of the test, but the state’s GED graduates dropped from 7,083 in 2013-2014 to 1,663 in 2014-2015.

As we have discussed in depth in a previous report, in order to make needed progress in this area, greater investments in KYAE are needed — for instance, for increased marketing, supports for adult education students and professional development for instructors. But adult education is not shielded from potential 9 percent cuts in the governor’s budget (and 4.5 percent cuts this year).

As shown in the graph below, KYAE has already been cut by 26 percent even before adjusting for inflation.

KYAE

Source: Kentucky Adult Education.

According to a presentation by the Council on Postsecondary Education (CPE) today to a House budget review subcommittee, the additional cuts in the governor’s budget proposal would exacerbate these issues:

  • Negatively impacting enrollment in local adult education programs.
  • Reducing funding for instruction, resulting in a loss of 80 instructional staff in local programs.
  • Reducing student recruitment efforts of the hundreds of thousands of Kentucky adults without a high school diploma or GED.
  • Reducing professional development efforts targeted to improved teacher quality and effectiveness.

With the state’s already challenged GED credential attainment, we need more rather than less investment in adult education to help benefit undereducated Kentuckians and the state as a whole.

 

 

Three Steps to a Better Budget this Session

The General Assembly has less than two months to finalize the next two-year state budget. Although the governor’s budget rightly takes a big step toward fully funding our pension liabilities, taken as a whole his plan would send the state backwards by deeply slashing the systems Kentucky relies on for the well-being of its citizens.

We don’t need to make such a painful choice. Kentucky can have a budget this session that more aggressively pays down our debt while better protecting education, human services and other vital investments needed to create thriving communities in our state.

Here are three steps to improve on what the governor proposed:

Don’t leave so much money sitting idle.
At the same time the governor’s budget makes cuts of 9 percent to many parts of government, the plan leaves over $1 billion idle and unspent. While it’s wise to put aside money in the state’s rainy day fund while the economy is growing (and spend it when recessions hit), the budget goes far beyond that principle. It adds $314 million to the rainy day fund (growing its balance to $524 million) and then transfers another $500 million from the state’s employee health insurance trust fund into a new “permanent fund” that has little definition in the budget.

While adding some money to the rainy day fund makes sense, we shouldn’t put $1 billion in limbo when there are such harmful cuts being proposed in the budget. And even though the budget goes a long way towards funding pension liabilities, it is still $397 million short of providing the full actuarially required funds to the teachers’ plan over the next two years.

Because the surplus in the health insurance fund exists because costs have been shifted to employees, any transfers from that fund should go only to pension funds (or for employee raises). Monies that can be responsibly transferred from that fund for pensions are better sent directly to the pension systems themselves where they can be invested for the long-term, rather than a new fund. Sending those dollars directly to pensions could free up some of the monies dedicated to these systems in the governor’s budget to help ease other budget cuts — while still putting as much or more money into those systems overall than what the governor proposed.

Reject new initiatives that lack development or are unwise.
The governor’s budget includes some new proposals that aren’t fully fleshed out or are unsubstantiated. For example, the budget includes $59 million over the biennium for a new workforce development scholarship that would divert lottery money from financial aid for low-income Kentuckians, as has become the recent habit of the legislature. But the new scholarship program doesn’t exist in statute and has no specific design or plan supporting it that is put forward in the budget. Likewise, the governor has proposed $100 million in bonds for buildings and equipment related to workforce development. But with such a need for affordable access to higher education and training, it’s hard to see the justification for such large capital spending in this area.

These ideas need further study before so much money is diverted to them, and could be looked at as part of a new workforce development task force proposed by resolutions in both legislative chambers.

Another example where dollars can be saved is the plan to shut down Kynect and move to the federal health insurance exchange. The state will incur an uncertain amount of costs associated with this transition. Because no state has shut down a working exchange we don‘t know yet what portion of the transition costs the federal government will pick up. It doesn’t make sense to spend new money to overhaul a program that is working well — and is in fact recognized as a national model — when other areas of the budget are being cut so deeply.

Take a more balanced approach by ending some tax breaks to generate new revenue.
The governor’s budget takes a one-sided approach to the state’s fiscal challenge by paying down liabilities through sacrificing important areas of the budget. But a more balanced approach would also reduce the tax expenditure side of the ledger, where the state spends billions of dollars each year in unexamined tax breaks. The legislature did just that the last time it increased its contribution to paying down pensions, in 2013, when it ended some tax breaks to generate additional revenue for those payments. That was in recognition that we can’t afford to undermine the investments we need to prosper in order to pay down our liabilities.

There’s no reason the General Assembly can’t do that this time. For example, Kentucky could raise $88 million by closing a handful of corporate tax loopholes or $104 million by ending a few sales tax breaks for luxury services, proposals that are included in House Bill 342. The legislature should also end the loophole that allows suburban mansion owners and developers to benefit from a tax break intended for working farms, as exposed by the Lexington Herald-Leader. Taking some action on tax breaks would better allow us to more aggressively pay down pension liabilities and put more money into our schools, higher education institutions, human services and other areas slated for deep cuts.

Even with these three steps, we’d still be facing a budget with harmful cuts and big challenges ahead. But we could lessen the pain through wiser use of public dollars. Creating a budget for Kentucky’s future would require an additional step: declaring that the next priority on the state’s agenda is a more aggressive effort to clean up the tax code so we can better invest in a stronger Commonwealth.

Coal County Services Harmed by Severance Tax Collapse at Time of Transition

A steep decline in the production of coal in recent years has reduced severance tax dollars going to Kentucky’s General Fund and back to coal counties, stretching already tight state and local budgets even further. In 2015, coal severance tax receipts were just 62 percent of what they were at their peak in 2009, and the forecast for the biennium estimates that in 2018, they’ll be down $185 million from 2009 receipts.

In yesterday’s meeting of the House Appropriations and Revenue Committee, legislators heard testimony from coal county judge executives whose severance tax revenues currently range from just 10 to 20 percent of what they were in 2009. The consequences of declining funds have included:

  • Layoffs and bans on overtime;
  • Shuttered community centers and recycling centers;
  • Higher sanitation bills and 911 fees;
  • Drastically reduced meals to senior citizens;
  • And federal dollars left on the table due to constrained local funds.

Going forward, the judges testified, too little revenue will jeopardize their ability to fulfill state-mandated duties including sanitation, parks, county jails, animal control and fire and rescue.

Unfortunately, given the tight budget situation Kentucky faces, many others have come before the legislature to explain that proposed cuts threaten their statutory and constitutional duties, as well. Declining coal severance taxes are just one cause of erosion in the state’s General Fund, a problem that is creating competition for inadequate dollars across all budget areas including public schools, higher education and health and human services.

Inadequate revenue has also meant less revenue sharing with local governments, which has dropped from 3.2 percent of Kentucky’s economy in 2009 to just 2.8 percent in 2013, the most recent date for which data are available (a loss of about $630 million). With less state support to invest in local services and infrastructure, school boards, city and county governments and special districts have leveraged what limited authority they have to raise revenue. Accordingly, in recent years there has been a push to expand the set of revenue raising tools available to local governments by allowing communities to levy an additional penny sales tax to pay for projects approved by voters.

Yet one of the problems with the local option sales tax – that it doesn’t work as well in smaller or depressed local economies – applies to coal communities’ general struggle to raise needed revenue: property tax rate hikes on small bases generate little revenue; occupational taxes on communities with high unemployment and low wages are inadequate to meet needs. The loss of coal and the good-paying jobs it once provided has been devastating for these communities. Coal employment has dropped 54 percent since 2011 in Kentucky, according to the Department of Energy Development and Independence.

After hearing the judges’ testimony, legislators expressed an intention to help coal communities. Two different bills in the House would increase severance taxes going back to the counties. In recent years, the General Assembly has used about half of coal severance tax dollars for the state’s General Fund and spent the remainder in coal counties through a combination of bonds for water and sewer projects, development of industrial sites, a variety of education and social programs, numerous local projects earmarked in the budget and grants to local governments for services. The state has also begun funding the Shaping Our Appalachian Region (SOAR) process through an operating grant and monies for a regional development fund.

Of course, increasing the dollars going directly to local governments would mean less in the General Fund to spread across the rest of the budget. But that’s not a good reason to withhold aid from coal counties which have provided Kentucky with decades of cheap energy—especially when dollars are needed to invest in strategies that help transition the economy.

It is, however, more proof that we won’t move forward as a state until we clean up the tax code so we have more to invest in such things as well as the public schools, community colleges, mental health services, child care assistance and other critical programs that help Kentucky communities to thrive.

Lawmaker: Only Working Farms Should Get Farmland Preservation Tax Break

Cuts to Property Valuation Administrators Counterproductive

Kentucky’s Property Valuation Administrators (PVAs) testified to a House budget review subcommittee yesterday that proposed budget cuts could compromise the state’s ability to generate property tax revenue. Such cuts may be counterproductive because by undermining our ability to collect revenue they can worsen budget problems.

Kentucky counts on property taxes to help fund state services, school districts and local governments. In 2014, total real and tangible property tax revenue to the state totaled $2.8 billion. About $1.4 billion of those dollars are generated locally for schools.

Collecting that revenue depends on the capacity of the PVAs to keep assessments of properties up to date. As the recent Lexington Herald-Leader series shows, when PVAs lack resources and vigilance it can mean millions of dollars in lost revenue for schools, infrastructure and other critical investments.

About $43 million of the PVA’s $49 million budget comes from the state, with the remainder paid by cities and counties. According to Kentucky PVA’s testimony, the PVA’s expenses are 99 percent personnel, who are essential to the state’s ability to raise property tax revenue. Budget cuts would mean laying off some of these staff.

As seen in the slide below from the PVA’s presentation, over the biennium the PVA is expected to raise an additional $35.3 million in state property taxes — $24.9 million of which will require new property assessment/reassessment, which is labor intensive work.

PVA 1In addition to the cuts in General Fund dollars going to the PVA, the budget proposal redirects half of the agency’s restricted funds from their intended purpose — which is for operating expenses in PVA offices — to cover PVA salaries that should be covered by General Fund dollars. The total cuts to the state’s PVA must therefore take into account the loss in General Funds dollars as well as the redirected restricted funds. The slides from the PVA’s presentation below detail these proposed cuts.

PVA 2

According to the PVA’s association’s executive director, if the restricted funds weren’t swept the agency would be able to keep its existing staff. However, the PVA has already been struggling under previous budget cuts and has lost around 40 employees through attrition over last 5 years. Even if the restricted funds were restored, the PVA would not have funds for new technology or other investments to better help with assessments and other aspects of bringing in property tax revenue.

Undocumented Immigrants in Kentucky Pay $37 million in State and Local Taxes, Would Increase with Legal Status

Undocumented immigrants contribute to the Kentucky communities in which they live and work in a number of ways, including through taxes. Because immigration reform would provide a pathway for full compliance with tax laws — as well as improve immigrants’ ability to earn financial and human capital — it would also increase the taxes they pay.

A new report from the Institute on Taxation and Economic Policy estimates the 45,000 undocumented immigrants living in Kentucky today pay $37 million every year in state and local taxes — at an effective tax rate of 7.1 percent of family income (compared to the wealthiest 1 percent of Kentuckians who pay just 6 percent). Under comprehensive reform granting them legal permanent residence, taxes would increase to $53 million and their tax rate to 9.2 percent.

The report also estimates that under President Obama’s “Deferred Action” programs which grant a temporary stay from deportation for 18,000 qualifying undocumented immigrants in Kentucky, tax contributions would increase by $6 million annually. That population includes parents of U.S. citizen children and young adults who have been in the U.S. for at least five years. DACA and DAPA, as these programs are known, are awaiting Supreme Court review.

Nationwide, undocumented immigrants contribute about $11.6 billion in taxes. This would go up by about $805 million under the Obama administration’s executive actions and would increase by $2.1 billion under comprehensive reform.

Like American citizens, undocumented immigrants across the 50 states pay property taxes as homeowners or renters (as landlords pass the costs through); sales taxes on the things they purchase; and income and payroll taxes on their earnings. Bringing them out of the shadows will benefit immigrants and the communities they live in, including public institutions that rely on tax revenue.

immigrant blog

Source: Institute on Taxation and Economic Policy

Fact Sheet: Need-Based Financial Aid Dollars Being Diverted to General Fund

For years millions of scholarship dollars have been diverted away from Kentucky’s need-based financial aid programs to the General Fund.

Studies have shown that need-based financial aid:
• Increases college enrollment among low- and moderate-income students.
• Increases college persistence and the number of credits earned.

Kentucky has two need-based financial aid programs funded by the lottery. According to state law, lottery funding should be split 3 ways:
•  Literacy programs receive $3 million off the top.
•  The merit-based scholarship, the Kentucky Educational Excellence Scholarship (KEES), receives the next 45 percent.
•  The need-based scholarships, College Access Program (CAP) and the Kentucky Tuition Grant (KTG), receive the remaining 55 percent to be allocated between them.

In 2015 the Lottery Corporation gave the state $221.5 million (this does not include unclaimed prize money). If the money had been used as originally intended:
• $3 million would have gone to literacy programs (which it did);
• $98.3 million would have gone to the merit-based scholarship Kentucky Educational Excellence Scholarship (KEES actually got $101 million from these funds, plus an extra $8.6 million in unclaimed prize money);
• And the need-based CAP & KTG scholarships should have received $120.1 million (CAP & KTG actually got $92.1 million).

Combined, CAP & KTG were shorted by $28.1 million, which is equal to over 15,000 fewer students having access to money for college. If enacted, the proposed 2016-2018 budget would use $35.3 million in 2017 and $38 million in 2018 intended for CAP & KTG to fund other priorities. This would be more than has ever been diverted from need-based scholarships before.

In 2015, 95,018 Kentuckians were deemed eligible for CAP funding based on their Free Application for Federal Student Aid (FAFSA).
• However, just 38,587 were awarded the scholarship due to a lack of funds. Meaning 3 out of every 5 CAP eligible students were turned away.
• 1 out of every 3 KTG eligible students was turned away for the same reason.

Lottery Funds Diverted from CAP & KTG

fact sheet graph

Source: KCEP analysis of Kentucky Office of the State Budget Director and KHEAA data.

Lottery Scholarship Fact Sheet

Kentucky Tonight: State Budget

Kentucky Tonight: State Budget

by Bill Goodman

Unanswered Questions about the Cost and Feasibility of Shutting Down Kynect

The governor has notified the federal government that he intends to shut down Kynect and shift Kentucky to the federal health insurance exchange for the next open enrollment period that starts this November. In addition to potential harm to Kentuckians, including higher premiums and fewer people covered, big questions persist about the cost and feasibility of making this transition.

Kynect is widely viewed as a national model for its effectiveness in getting people signed up for the health insurance they are eligible to receive. And it’s shown in the results — Kentucky led the nation in its increase in health coverage in 2014. That’s because Kentucky built a simple and user-friendly system and created an in-state call center, carefully tailored marketing efforts and a network of community-based outreach partners.

State officials say the cost for an information technology (IT) vendor to shut down Kynect will be less than the original quote of $23 million reported by the Kynect executive director in August. Although the administration has not said how much it will cost, they say that Deloitte, the IT vendor, has lowered the estimate based on its experience doing transitions in other states.

But there will still be substantial IT costs and those costs aren’t the only ones Kentucky will incur in making this transition. The state will have to return much of $57.5 million in grant funds already awarded because it is shutting Kynect down. Kentucky will also face ongoing operational costs including the cost of shuttling applications between Medicaid and the federal exchange, implementing and staffing the new intake and processing system for Medicaid (which the state says will be through a new program called Benefind), and conducting outreach and marketing to make sure people know what they are eligible to receive and how to enroll.

Also, it’s unclear what share of the costs of shutting down Kynect would be picked up by the federal government. While 90 percent of the IT costs of transitioning some state exchanges to the federal exchange have been paid by the federal government in the past, the situation in those states was much different than Kentucky’s. In those states, the transition was necessary, because the state exchanges had failed. In Kentucky’s case, the state is abandoning a highly successful exchange that is now well-integrated with Medicaid for an inferior approach.

In fact, federal law says that to be eligible for a 90 percent match the federal government must “determine the system is likely to provide more efficient, economical, and effective administration” of the state plan to provide coverage. Given the many problems states have faced and still face in coordinating Medicaid and exchange coverage, breaking up Kynect would not provide more efficient and economical administration of Kentucky’s Medicaid program.

The answer of what costs the federal government will pick up may not be known in time for the legislature to take into account when enacting the budget, because the state must submit a plan to the federal government first.

In addition to uncertainty about costs, there are serious questions about the feasibility of pulling the transition off in time for the 2017 coverage year. To make the transition, the state must be ready for insurers to submit applications to participate in the federal exchange by April 11, and it must be ready to user test its new system by fall at the latest.

Making a quick transition will require resources and a high degree of technical skill and competency. And there’s the potential for big new snags for consumers, including long wait times, lost applications and other challenges. New Health and Family Services Secretary Glisson opened the door to the possibility it will take more than one year to make the transition in testimony to the Senate Appropriations and Revenue Committee last week.

Now that the budget is in the General Assembly, legislators should ask hard questions about the costs and impact of breaking up Kynect. Lawmakers need more information so that they can make sound and prudent decisions about how Kentucky can best sustain our nation-leading health coverage gains and avoid unnecessary new costs and problems that could result from abandoning a system that has worked so well.