Op-Ed: Undermining Kentucky’s Foundation Not a Lasting Solution to Pension Challenge

This column originally ran in the Courier-Journal and Lexington Herald-Leader on April 30, 2016.

Following the governor’s vetoes — which included eliminating thousands of college scholarships for low-income Kentuckians — the new state budget for the next two years is now set. While the budget makes necessary contributions to our underfunded state pension plans, the damage it inflicts on the sources of our Commonwealth’s prosperity are a real reason for worry.

In looking for much-needed money to shore up the pension plans, the governor and General Assembly took resources away from the systems that keep all of us educated, safe and healthy. That makes 16 rounds of budget cuts between 2008 and 2018, or a “lost decade” for the investments that build thriving communities, from good schools to infrastructure.

While everyone knows we must more aggressively pay down our liabilities, doing so by sacrificing investments that pay off over time is not a sustainable solution. This course will harm our economy and quality of life, making it even harder to right our fiscal ship. It’s pretty simple: If we want to prosper, we have to invest as a state. You can’t get something for nothing.

In the coming months, we’ll face some of what economist Charles Schultze once called “wolves at the door” problems because of this budget: immediate harms ranging from tuition increases and higher student loan debt to restricted access to human services and employee layoffs.

But the bigger challenge from continued underinvestment is what he called “termites in the basement” problems. Budget cuts slowly eat away at the foundation of our Commonwealth, doing lasting damage to the systems and structures we need to grow.

Thriving communities and a prosperous society are built on shared contributions we make through our budget. We’re all better off when our schools are great, when more Kentuckians can finish college, when our population has improved health and our businesses can compete with the help of a modern infrastructure.

But this budget makes inadequate investments and relies on tenuous one-time funds unlikely to be available next time around. Unless we find more resources, chances are we’ll face more budget cuts in two years or an unacceptable reversion back to our old habit of skipping pension contributions.

The problem of growing pension liabilities is just a symptom of a deeper challenge: a tax code with an increasing number of holes that drain our revenue stream. Underfunding pensions was a way to delay facing that problem, but it has just made debt pile up.

There is a clear way out of this mess. It involves cleaning up the tax code of some of the billions of dollars in breaks, many of which benefit powerful interests. That’s the way we create a budget that keeps our promises while allowing us to finally reinvest in Kentucky. After decades of studies and talk about the issue, most everyone knows that’s what we must do. But our political leaders need to hear a call for change more clearly and directly.

That’s why we’ve joined a wide variety of organizations and leaders across the state to form a new initiative called Kentucky Together. It’s working to deepen understanding about the importance of the budget to our well-being and the need to end some tax breaks so we can better invest in what works.

And we’re not waiting until the next budget session comes around in two years. We’re starting today and we need you to join us.

Visit www.kentuckytogether.org to learn more. Host a presentation with your organization or community, share videos from the website that make clear the benefits of public investments and the problems with our tax code, and contact your elected representatives about the need to take action.

In the past, Kentucky has made progress in education, health, environmental improvement and more when we’ve had the resources to invest. Look no further than the strides we made in our schools after we raised resources in 1990. But any leader in any sector today will tell you shrinking revenues are the main barrier to further advances.

Kentucky’s widely-cited motto recognizes that we rise and fall together — that’s why we call ourselves a Commonwealth. It’s time our policies change to reflect that founding truth.

Budget Will Hobble Kentucky

Budget Will Hobble Kentucky

by Lexington Herald-Leader

State Park Repairs Not Among Vetoes

University of Louisville Tuition Increase for Next School Year Capped at 5 Percent

Building to the Future

Building to the Future

by Kentucky Kernel

Governor Vetoes Need-Based Scholarships for Thousands of Students

Governor Bevin vetoed $40.3 million in funding for need-based college scholarships contained in House Bill 10, meaning denied aid for nearly 22,000 low-income students that had been awarded by the General Assembly. This is at the same time the budget cuts funding for higher education by 4.5 percent, leading to tuition hikes at the public universities and community colleges.

The governor’s vetoes also delay the start of the Work Ready Scholarship, a program designed to help some traditional-age students pursue associate’s degrees, by one year from 2017 to 2018. That amounts to a cut of $9.4 million. Some or all of that $9.4 million may end up going to the need-based college aid programs — known as the College Access Program (CAP) and the Kentucky Tuition Grant (KTG) programs — but the amount is unclear. The budget does increase funding for CAP and KTG compared to the previous biennium of at least $14.7 million, or nearly 8,000 more scholarships. However, with the vetoes the budget does not meet the statutory promise that 55 percent of lottery dollars will go to need-based aid, as the General Assembly’s budget nearly achieved.

Separately, the governor vetoed House Bill 626 which sets up the statutory framework for the Work Ready Scholarship as well as for a performance-based higher education funding system, a dual credit program and a board to oversee the $100 million workforce development bond included in the budget. This veto does not affect the funding for those programs in this budget.

The governor vetoed an expansion of eligibility for preschool from 160 percent to 200 percent of the federal poverty line. This veto does not reduce the amount of funding that goes into preschool, but may limit schools’ ability to fully utilize preschool funds. Earmarks were also eliminated for the ACT and WorkKeys testing program and the Every1 Reads program.

The governor’s vetoes delete up to $7.5 million over the biennium for the Quality and Charity Care Trust Fund at the University of Louisville Hospital, which helps cover health care costs for the uninsured. While spending on this program has declined dramatically in recent years thanks to Medicaid expansion under the Affordable Care Act, some monies are still needed and Kentucky’s uninsured rate is at risk of going up because of the governor’s plans to shut down Kynect and make changes to Medicaid. Similarly, language is deleted that earmarks $1.5 million for breast, cervical and colon cancer screening.

The governor’s vetoes also include eliminating language outlining how the governor will deal with allotments and budget reductions if there is a shortfall, issues that the governor is now in litigation with the Attorney General over for the 2016 fiscal year. In addition, language changes were made that give the executive branch more flexibility in how certain monies are spent.

Tuition Increases Capped at 4.6 to 6.1 Percent for Kentucky Schools

Ky.’s Unprecedented Success In School Funding Is On The Line

Kentucky’s Class of 2016 Faces Lingering Slack in Labor Market

Despite improvement, the labor market is still weak for young Kentuckians graduating from high school and college in 2016 according to a new report from the Economic Policy Institute (EPI). These graduates join the previous seven classes who have faced “profound weakness” following the Great Recession.

In 2015, the unemployment rate for workers under age 25 in Kentucky was still 0.5 percentage points higher than before the recession (unemployment includes people who are currently without work, but actively seeking a job). Even more indicative of the extent of labor market weakness, the underemployment rate for young Kentuckians is 23.3 percent and still 3.7 percentage points above the 2007 rate (underemployment includes the unemployed and also those who are employed part-time but would rather have full-time work and those who have given up looking for work in the last four weeks but have actively looked in the past year). In contrast, the 2015 unemployment rate for all Kentucky workers was back down to its prerecession level and underemployment was elevated just 1.1 percentage points.

class of 2016 1

Notes: Includes all workers age 16 and older. Click here to compare rates across states.
Source: EPI analysis of CPS Microdata.

Young workers face competition from older, more experienced workers in a strong economy and their employment prospects are hurt disproportionately in hard times. The depth and length of the trouble for young workers since 2007, EPI points out, is not due to some unique characteristic of young people today – such as a lack of education – but to the historical severity of the Great Recession and the slowness of the recovery.

In fact, Kentuckians “are more educated than ever.” Yet many educated young people are working in jobs that do not require a college degree – nationally, 44.6 percent of college graduates under 27 were in this predicament in 2015. That’s up from 38 percent in 2007.

Despite these unfavorable conditions, it’s not true that young people today are taking refuge from the recession in large numbers by returning to school. Enrollment at Kentucky’s universities and community colleges jumped from 211,179 in 2008 to 235,833 in 2011, but had fallen back to 208,251 by 2015. As the table below shows, a smaller share of young Kentuckians were enrolled in 2013-14 and 2014-15 than before the recession. Nationally, EPI notes, enrollment growth is in line with long-term historical trends and does not indicate that young people are attempting to “ride out” the weak employment situation in school. Combined with the lack of employment, that means an elevated share of young people are “idled” by the bad economy—neither working nor in school.

class of 2016 2

Source: EPI analysis of CPS Microdata.

One possible explanation for why postsecondary enrollment isn’t higher is that decreased public investment in higher education over recent decades has led institutions to raise tuition. With generally stagnant wages over the last 15 years that have only recently returned to 2007 levels, the money people have to pay for college has not kept up with the cost. And while other states have begun reinvesting in higher education after deep cuts through the recession, Kentucky continues to cut state funding including in the new 2017-18 budget.

Young people who do manage to get through college are graduating with more debt. Nationally, average debt has tripled since 1989 according to EPI. In a slack labor market, with fewer (and lower-quality) jobs and stagnant wages, repayment is more difficult. Kentucky students have the third-highest student loan default rate in the nation.

Overall data for the graduating class of 2016 show reason for continued concern, but disaggregated data by race/ethnicity reveal that young black and Hispanic workers face even deeper challenges in the labor market. Nationally, today’s unemployment rate for black college graduates is still 0.4 percentage points higher than peak unemployment was for white graduates during the recession (9.4 percent compared to 9 percent). The current unemployment rate for white college graduates is 4.7 percent. Unemployment is also higher for black high school grads than their white peers. For Hispanic high school and college grads, unemployment rates tend to be higher than for white but lower than for black graduates.

And while women have tended to fare better in the recession in terms of employment – due in part to the fact that traditionally male-held jobs in manufacturing, construction and transportation are hit harder by recessions – women college grads make 79 cents on the dollar what men do. The pay disparity among high school grads is smaller (92 cents on the collar) and has actually shrunk since 2000, possibly due in part to state minimum wage increases which disproportionately benefit women who make up a larger share of the low-wage workforce.

Young Kentuckians will suffer the consequences of the weak labor market they are entering for some time to come. EPI lists two main types of federal and state policies that would tighten the labor market for all Americans, including young people: 1) policies that move the country toward full employment such as continued low federal interest rates and state and federal investments in infrastructure and 2) those that put more money in workers’ pockets like raising the minimum wage, strengthening the EITC, protecting collective bargaining, ending discriminatory practices and raising the overtime threshold.

One-to-One with Bill Goodman

One-to-One with Bill Goodman

by Bill Goodman