Governor’s Budget Proposal Would Worsen College Affordability

Governor Bevin’s budget proposal would not improve — and would even worsen — the state’s college affordability problems. Deep budget cuts to public universities and community colleges are expected to result in more tuition increases, and funding for need-based scholarships remains basically flat while lottery money intended for these scholarships is diverted to other priorities.

Unless greater investments are made in higher education than what has been proposed, the opportunity to go to college and complete a degree will continue slipping farther and farther away for many Kentuckians.

While the eight public universities and the community college system have seen their budgets slashed over the last eight years, the additional cuts are particularly severe. In inflation-adjusted dollars, Kentucky’s public postsecondary institutions would be cut 35.4 percent since 2008. Cuts could end up being even greater at these universities and community colleges in 2018, as a third of the funds are dependent upon each school’s performance on an as yet to be determined set of criteria.

As state funding for Kentucky’s higher education institutions has been cut over the years, tuition has gone up dramatically, in large part to make up for these cuts. Since 1999, tuition at state schools has increased from 206 percent (at Murray State) to 286 percent (at Western Kentucky) (see graph below). Community and technical college tuition went up 203 percent and has become the highest among Southern Regional Board states. The additional cuts in Governor Bevin’s budget are expected to lead to more tuition increases as the state’s public universities and community colleges attempt to compensate for the lost state revenue.

It is important to note that as these cuts are being proposed, most all other states have begun reinvesting in higher education after cuts resulting from the recession, and two states — Tennessee and Oregon — are even offering free community college.

In this context, it is unfortunately not surprising the state lags behind in postsecondary degree attainment. Currently just 34.4 percent of adults 25 to 54 in Kentucky have an associate’s degree or higher, ranking the state 9th from the bottom on this measure.

Low-income students are bearing the brunt of these trends, and would experience the greatest hardship as a result of the governor’s budget proposal. Low-income students in Kentucky earn postsecondary degrees and credentials at particularly low rates. According to the Council on Postsecondary Education’s most recent accountability report, the bachelor’s degree attainment rate was 48.9 percent for all Kentucky students at four-year institutions in 2012-2013 — but just 36.6 percent for those with low incomes. In addition, the 2012-2013 graduation rate for all Kentucky students at the state’s two-year-degree-granting colleges — where many of the students are low-income community college students — was just 12.8 percent; the associate’s graduation rate for low-income students was 10.4 percent. Finances are typically the biggest reason community college students in Kentucky withdraw from school.

In the governor’s budget proposal, these low-income Kentuckians do not get any additional opportunities to receive need-based financial aid, which helps to offset the increased cost of college. As we’ve described elsewhere, the state’s need-based scholarship programs — the College Access Program (CAP) and the Kentucky Tuition Grant (KTG) — have not been receiving the full amount of lottery funding that was intended by law as millions of these dollars have been instead used to plug holes in the state budget. In 2015, an estimated 15,000 students who were eligible for financial assistance but were turned away due to lack of funds would have received need-based scholarships if the money had not been swept.

According to the proposed budget, more money than ever would be diverted from CAP and KTG: $35 million in 2017 and $38 million in 2018; in this case the funds are largely going to a workforce development scholarship for which details have not yet been provided. This represents roughly 20,000 students in each fiscal year that will not have access to need-based aid because of the money being moved. Need-based aid has been shown to incentivize college enrollment and persistence for low-income students, which is why these scholarships are such an effective investment.

Infographic: Budget Cuts Have Costs and Consequences

Governor Bevin’s budget includes nine percent across the board cuts to most state services. If these cuts go into effect, many areas will have been cut by 15 to 50 percent since 2008. The infographic below highlights some potential harmful effects from such cuts.

Budget Cuts Infographic

Kentucky Tonight: Minimum Wage

Kentucky Tonight: Minimum Wage

by Bill Goodman

Outside Groups Advocate for Tax Reforms as Legislature Faces Austere Budget

Years of Constant Budget-Cutting Show Kentucky Needs More Revenue

Gov. Matt Bevin to Study Possibility of Tax Reform

Coalition “Together” on Need for More $$ in KY

School Board Analyzes SEEK Funding

School Board Analyzes SEEK Funding

by Ron Benningfield

Kentucky Can Take More Balanced Approach to Tight Budget with New Revenue Options

Research Shows Disconnect Between States’ Job Creation Policies and Real World Job Growth

New analysis shows the vast majority of job growth in Kentucky (and all states) comes from in-state companies, calling into question the state’s focus on recruiting out-of-state businesses to the Commonwealth. Findings also suggest under-investing in education, infrastructure and other essential supports for homegrown entrepreneurs and successful Kentucky businesses poses a great risk to future job growth in our state.

The new report from the Center on Budget and Policy Priorities shows that in all states from 1995 to 2013, between 8 and 9 of every 10 new jobs were created by start-ups and existing companies. Only a very small share – between about 1 and 4 of every 100 new jobs – were relocated from one state to another, with the remaining small share of growth coming from new branches of businesses headquartered in other states.

The data come from relatively new databases created by the U.S. Census Bureau and Department of Labor which allow analysts to track businesses’ job creation while accounting for buy-outs and re-structuring.

Conventional thinking about economic development and job creation policies are out of step with these facts. It’s commonly assumed that Kentucky must focus primarily on attracting out-of-state firms with lower taxes or tax breaks (or in the case of “right-to-work”, with lower wages). But these policies focus on a narrow source of growth and leave Kentucky with even less to invest in a workforce businesses can rely on and communities where people want to live, work and grow their businesses.

In other words, tax cuts and tax breaks leave states with less to support the main job creators. As the Center illustrates with a dynamic graphic, even though start-ups often fail, over the long term and on aggregate, they drive job creation. Start-ups (which by their nature are typically in-state endeavors) are also the incubators for the few but impactful “gazelle” companies like Amazon and Google that grow a disproportionate share of new jobs by creating new products, services and methods.

Proponents of the conventional tax-cutting approach to job creation also claim small businesses and start-ups (whose owners typically pay individual rather than corporate income taxes) will be able to hire more employees if their taxes are lower. But income tax cuts are poorly targeted to these businesses for a couple main reasons:

  • Start ups tend to invest available resources in developing, producing and marketing their product, meaning profits are small if not non-existent. Income tax breaks aren’t an effective support for businesses that pay little to nothing in income taxes.
  • Only about 14 percent of people own a small business, and less than 3 percent employ other people. That means such tax cuts would apply to the vast majority of people who do not directly create jobs.

So how can Kentucky support entrepreneurs? It’s a vast topic that many state and local governments, non-profit organizations and businesses are learning how to answer (KCEP’s parent organization, The Mountain Association for Community Economic Development (MACED), offers technical assistance, training, workshops, and business mentoring, among other services to small businesses in Appalachia).

But perhaps a guiding principle is to “do no harm” to public investments in the state’s workforce: a 2008 study from the University of Kentucky’s Center on Business and Economic Research found a statistically insignificant relationship between states’ economic growth and “business climate” variables like corporate and individual income taxes as a percent of total personal income and a state’s right-to-work status. However, “stock of knowledge” variables such as the average number of patents per resident in a state and the percent of the population with four or more years of college had the strongest (and a statistically significant) relationship with economic growth.