by Ryland Barton
by Phillip Bailey
The decision by the Supreme Court of Kentucky invalidating local minimum wage increases means 76,000 working Kentuckians in our two biggest cities now must look to the General Assembly for action. An estimated 45,000 workers in Louisville and 31,300 workers in Lexington will no longer receive the much-needed raises made possible by local minimum wage ordinances. All this makes action even more urgent on the part of the General Assembly to raise the minimum wage state-wide while allowing localities the freedom to go beyond the level the state sets.
Across the Commonwealth, 1 in 4 Kentucky workers have jobs that pay less than $10.10 an hour. Not only has the minimum wage lagged behind inflation, but it has also failed to keep up with growth in the economy. Had the minimum wage grown along with worker productivity since 1968, its value today would be $18.96, which is 262 percent greater than the current $7.25 per hour.
Those who would gain from a state-wide minimum wage increase are typically adults whose income matters to household finances and family well-being:
- 88.3 percent of affected workers are at least 20 years old, and more than half are at least 30 years old.
- A larger share of affected workers is older than 55 (11.7 percent) than teenagers (11.3 percent).
- More than half work full time, and another third work at least 20 hours a week.
- One in four workers is the only provider of family income.
- On average, affected workers earn 55 percent of family income; the parents among them earn 64.3 percent.
- More than half of Kentucky families making less than $20,000 would benefit.
- About one third of the state’s single parents would be affected.
- 4 percent or 228,000 of Kentucky’s children have at least one parent who would be affected by the increase; Kentucky is one of twelve states where more than one in five children would benefit.
- 6 percent of affected workers have had some college,another 7.1 percent have a bachelor’s degree or higher and 16.5 percent have less than a high school degree.
Because women account for a disproportionate share of the state’s low-wage workforce, raising the minimum wage would also shrink the gender wage gap. Although they make up 49.6 percent of the state’s workforce, women account for 55.2 percent of those who would be affected by the raising the minimum wage to $10.10.
A minimum wage increase is needed because its erosion has widened the gap between what families earn what it takes for them to get by. The Economic Policy Institute has produced estimates of the income needed to provide a “secure yet modest” standard of living in localities across the United States, meaning enough income to afford housing, food, child care, transportation, health care, other necessities and taxes. That study found that a family of three in localities across Kentucky needs upwards of $50,000 a year to make ends meet. But a full-time, year-round $7.25 minimum wage worker makes only $15,080.
Those who argue against raising the minimum wage frequently say that doing so would lead to a decrease in the total number of jobs available. But a rigorous, vast and growing body of economic research indicates that reasonable increases in the minimum wage have little or no effect on employment. In Louisville from July 2015 to July 2016 – the first year the ordinance was in effect – employment grew by 2.5 percent in the city as opposed to 1.8 percent state-wide, according to data from the Bureau of Labor Statistics. This is far from the catastrophic job losses predicted by opponents when the Louisville minimum wage ordinance was being considered in 2014.
While this ruling is a big setback for the tens of thousands of hard working, low wage Kentucky workers who were scheduled to get much-needed raises, the General Assembly now has the opportunity to take action when they next meet to ensure more Kentuckians who work can meet their basic needs. They have the opportunity to both increase the state-wide minimum wage and allow localities that want to go beyond that level the freedom to do so. Those actions would benefit workers across the state and boost our economies at the same time.
Statement from Executive Director Jason Bailey:
“This ruling is a big setback for the tens of thousands of hard working, low wage Kentucky workers scheduled to get much-needed raises that would boost their families and local economies. An increase in our minimum wage is long overdue. It is now up to the General Assembly to take action when they next meet to correct this injustice and ensure more Kentuckians who work can meet their basic needs.”
While cleaning up tax breaks is the best way Kentucky can generate more revenue for needed investments in infrastructure, last year the legislature streamlined the process of contracting with private entities for funding. HB 309, passed in the 2016 session of the Kentucky General Assembly, gives state and local governments greater flexibility in securing public-private partnerships (P3s) which enlist private investors for the financing, construction, operation, and/or maintenance of infrastructure projects such as highways, bridges, parks and sidewalks.
While the notion of well-financed investors may make P3s sound enticing, there are complex and costly risks associated with handing over control of revenue and public structures. Those risks should be taken into account and managed as Kentucky moves more in this direction.
It’s important to remember that private, for-profit entities don’t enter P3s simply to assist governments by providing needed infrastructure – they seek to gain a return on the capital they invest. The experience of other states and cities shows that can be at the expense of the public interest. For example, contracts can be written in ways that require the public to chip in to make sure private companies benefit. In Chicago’s P3 parking meter project, contract provisions require the city government to reimburse the private investor when events like parades or maintenance puts meters out of service. Similarly, a toll road project in Indiana gave operating authority to private investors in 2006. In 2008, when flooding caused a separate highway to close, tolls were waived on the privatized road to provide motorists an alternate route. Due to terms of the contract, Indiana paid $508,000 in public funds to compensate the private investors.
And while proponents of privatization often suggest that private partners provide superior delivery of goods and services, the experience of many states and localities shows otherwise. One of the best, recent examples comes from the southern toll road portion of Texas Highway 130. Largely as a result of overoptimistic traffic projections and poor design, in March 2016, the more than 10 private firms involved in the deal filed for bankruptcy with $1.6 billion in debt, leaving the state also to clean up widespread pavement defects and drainage and flooding problems for local residents.
Generally, lower income residents bear a disproportional share of the cost of privatization. Strong public investments in the goods and services that strengthen communities provide access for all individuals and families. But privatization can worsen inequality by leading to new and higher existing user fees which make up a larger share of low-income residents’ income and limit their access to its use; lower job quality for the workforce providing those goods and services – including for construction workers, but typically a more female and minority workforce; and by resulting in some communities receiving investments where a profit is more likely while others are left behind.
P3s May Deepen Kentucky’s Infrastructural Challenges
One often-mentioned potential usage of P3s in Kentucky is in the state parks. Due to decades of underfunding, parks have seen a steady deterioration in their lodges and other facilities (deep challenges that the $18 million bump this budget cycle will only begin to chip away at). Even prior to the passage of HB 309, companies had expressed interest in investing in the ailing parks, according to Secretary Don Parkinson of Tourism, Parks and Heritage. Specifics of the proposed contracts would allow for state retention of title and property, while hotel and restaurant companies would manage the parks.
A potential risk, however, is that private companies may offer lower wages in the parks to reduce labor costs, which can harm local economies when workers have less money to spend. Also, considering that Kentucky state parks provide residents as well as visitors with access to our state’s natural beauty and a place to vacation, there is a concern that private entities may raise lodging, dining and recreational prices above what many local people can afford.
These same concerns and more apply to the potential usage of P3s on roads and bridges, water systems and other public goods that all communities need to thrive.
How to Protect the Public Interest
With the likelihood of more P3s in Kentucky, state and local leaders remain responsible for vigilantly protecting the public interest in these partnerships from conception to completion. To begin with, governments considering P3s as a way to address needs should engage in comprehensive fiscal as well as social and economic impact analyses. Since they are ultimately paying a higher cost of capital through private financing schemes, it is critical that elected leaders demand the resulting projects provide community benefits. Careful contract development would include, for example:
- Fair wages, benefits and job training;
- Targeted hire of local and underrepresented workers;
- User fee schedules that preserve access;
- Explicit construction and maintenance standards;
- Frequent and accurate reporting;
- Rigorous oversight by government officials and a board of community stakeholders;
- Clear consequences for non-compliance.
Private investment in public projects and programs can under certain conditions create opportunities for both communities and investors to work together, but strategic planning and scrutiny at every stage of the partnership are essential. With the myriad risks of P3s, public funding is often a more prudent solution for the public interest. Cleaning up the tax code of breaks that disproportionately favor those at the top would provide more reliable revenue to invest in these vital projects.
Kentucky is one of the worst states when it comes to cuts in core funding for elementary and secondary schools since the Great Recession, according to a report released today by the Center on Budget and Policy Priorities, a nonpartisan policy research organization based in Washington, DC.
Kentucky is third worst in the country when it comes to cuts to state formula funding for K-12 between 2008 and 2017, with a decline in per student funding of 13.1 percent once inflation is taken into account. This is down from the state’s ranking of 6th worst in last year’s report. Some other facts about the cuts:
- Kentucky is 1 of 19 states that cut per-student funding this year, with a 1 percent inflation-adjusted cut, according to the report.
- Kentucky cut total state education funding per student (formula funding plus other funding) by 8.5 percent between 2008 and 2014.
- Five of the eight states with the biggest education cuts also reduced income taxes since 2008, providing a warning sign for Kentucky as future tax reform is considered.
This erosion in support has damaging consequences that threaten the quality of education and the state’s economic growth.
“Instead of continuing to slide backward Kentucky should be investing in its communities through education funding,” Ashley Spalding, research and policy associate for the Kentucky Center for Economic Policy, said. “It is sometimes said that the state has protected K-12 core funding. But even with increases to SEEK, once the number of students is factored in along with inflation, these appropriations are experienced as cuts. And compared to other states, we are losing ground.”
Eroding state investment makes it difficult for Kentucky to reach the high academic goals it has set, and the educational progress Kentucky has made due to past investment could be in jeopardy. Poorer school districts feel the state budget cuts particularly hard as they are less able to make up for cuts with local property taxes. For example, the gap in per pupil state and local spending between the richest 20 percent of Kentucky school districts and the poorest 20 percent is more than 40 percent higher than it was in 2000.
“As this report also shows, following the bad tax proposals in other states of reducing reliance on income taxes would only lead to more cuts to education, something our communities can’t afford,” Spalding said. “Our leaders should instead invest in our communities by ending special interest tax breaks to generate more revenue for our schools.”
The Center’s full report can be found here.
by Bailey Loosemore
by Melissa Patrick