Inequality Between Rich and Poor Kentucky School Districts Grows Again Even as Districts Face New COVID Costs and Looming Revenue Losses

As schools across the commonwealth face unprecedented new costs and challenges from a surging pandemic and historic recession, prior cuts in state core funding for K-12 education make the challenge even worse for Kentucky’s poorest districts. A new analysis from the Kentucky Center for Economic Policy shows the funding gap between wealthy and poor school districts continues to rise, climbing to levels not seen since before the 1990 Kentucky Education Reform Act (KERA).

The new KCEP research shows that wealthy districts had $2,840 more in state and local revenue per student than poor districts in the 2018/19 school year (the most recent for which data is available). The gap increased $122 in 2019 compared to the prior year, and is now just $208 shy of the pre-KERA gap in inflation-adjusted terms. 

This gap is growing even as schools face new costs for distance learning and safe school operations including personal protective equipment; as the state and school districts anticipate deep tax revenue losses due to the unprecedented recession; and as families struggle with record-setting unemployment and rising food and housing insecurity — especially in low-income communities.

The drivers of growing inequity between rich and poor districts are inadequate state core funding for schools and an increasing reliance on local revenues, which create an advantage for students in wealthier communities. Even before COVID-19 hit, Kentucky ranked 4th-worst among states in core school funding cuts per student since the Great Recession. Now revenue shortfalls associated with the COVID-19 pandemic will likely stress both state and local investments in students, with potentially devastating impacts for students in poorer communities. In the short term, Kentucky needs much more in federal aid from Congress to prevent budget crises.

“Research shows that adequate and equitable school funding closes achievement gaps and boosts student outcomes. Kentucky was once on the frontlines of education reform that creates success for students no matter where they live,” KCEP Deputy Director and author of the analysis Anna Baumann said. “But we’ve been backsliding. As a result, we’re starting off the school year with the twin crises of a global pandemic and a level of inequity nearing what we as a state consider unconstitutional.”

According to the Center on Budget and Policy Priorities, federal aid provided to states in the COVID-19 pandemic thus far is sufficient to close just one-fifth of state revenue gaps. Education budget cuts caused by insufficient aid will magnify existing disparities and fall hardest on low-income students and students of color.

“Years of budget cuts have led to larger class sizes, outdated resources and technology, aging transportation and custodial equipment, reductions in classes like art, music, dance, agriculture and technology, and aging and crumbling infrastructure. And this was all before COVID-19,” Kentucky Education Association President Eddie Campbell said. Campbell is a teacher in Knox County, among the poorest 20% of Kentucky school districts. “Now, public schools are faced with additional costs related to COVID-19: transportation, technology, internet, cleaning, sanitizing, equipment for rooms and buildings and personal protective equipment.”

Though federal CARES act resources are already being used to address needs created by the pandemic, they are not enough to get districts through the school year. “It’s time for Congress to pass a no strings bill that provides all the funding necessary to stabilize our state,” Campbell said.

Kentucky superintendents in districts in the bottom quintile anticipate major challenges this school year if revenue shortfalls lead to another round of budget cuts.

“If budget cuts occur, what do we give up? The teacher providing reading interventions, a related arts teacher, or the counselor helping students prepare for college or future careers?” Green County Superintendent Will Hodges asked. “Funding within our district is a challenge during the best of times. During this pandemic, the fear that revenues could plummet is a worry to all districts but it is magnified for those districts that fall in the bottom quintile.”

Owsley County Superintendent Tim Bobrowski lifted up Extended School Services (ESS), transportation and food service as examples of “critical services that would suffer immensely” in another round of budget cuts. Furthermore, “local loss of jobs within the [school] system would affect the entire community,” Bobrowski said.  

In the Dayton Independent school district, 85% of students qualify for Free and Reduced Lunch. “Our students need and deserve the same level playing field of opportunity and access as all children across Kentucky. An across the board cut would expose our most vulnerable children the most,” superintendent Jay Brewer said.

Among the possible consequences of another round of state budget cuts in his district, Brewer listed reverting to half-day instead of full-day Kindergarten, eliminating universal preschool, reductions in teaching and support staff including mental health counselors, increased class sizes and diminished learning opportunities, inability to remain current with instructional materials and to maintain or improve School Security and Safety expectations. 

Floyd County could similarly face bigger class sizes and cuts to tutoring, ESS, student meals and “vital elective programs and even certain instructional programs that will affect students, especially those with learning disabilities,” Superintendent Danny Adkins said.  

Superintendents also note the challenges students and families are facing at home because of the pandemic. To Bobrowski, “the affordability of high-speed internet access is a key … a necessity for all families.” Adkins is concerned that “students in eastern Kentucky are facing both device and connectivity issues.”   

“Uncertainty of food, housing, and other essentials is a real concern for a growing population during this time. With time, the disparity between children will continue to grow. Our children are just as valuable and have as much potential as any child across the state,” Hodges said.            

In May, the U.S. House passed the HEROES Act which included general fiscal relief to state and local governments that would have helped stabilize states’ education, health care and other budgets, as well as aid to families in the form of increased SNAP food assistance, extended supplemental unemployment insurance and rent relief. Last month the U.S. Senate went into recess without passing a relief bill.

Why the Senate COVID Proposal Fails to Meet Kentucky’s Economic Needs

The new Senate aid proposal, known as the Health, Economic Assistance, Liability and Schools (HEALS) Act, falls far short of the breadth and depth of aid needed to fight the COVID-19 pandemic and weather the deep economic downturn. By including only 1/3 of the funds contained in the HEROES Act passed by the U.S. House of Representatives back in May, it leaves out critical assistance aimed at helping laid off workers, holding off a wave of evictions, fighting hunger, and preventing harmful cuts to state and local governments. Providing inadequate aid will ultimately exacerbate racial and economic inequities and prolong and deepen the recession.

Deeply cuts vital unemployment insurance benefit

The CARES Act’s $600 per week in jobless benefits (known as Pandemic Unemployment Compensation or PUC) expired in Kentucky on July 25 even as the pandemic is resurging and many remain jobless. Rather than extending this emergency boost until it’s safe to go back to work and jobs are returning to the state, the HEALS Act would reduce it to $200 per week until October when states would need to change their systems to provide 70% of past wages, with a cap at $500 beyond the regular state monthly benefit.

For the 200,000 Kentuckians receiving jobless benefits, cutting PUC benefits by 2/3 (to $200 from $600) would mean an average 42.9% hit to their income. Kentuckians receiving Pandemic Unemployment Assistance (PUA) – who are part-time workers, small business owners, freelancers, and people who left their jobs due to care responsibilities like child care being closed or caring for family members with COVID-19 – would see their benefit reduced by approximately half (to an average weekly unemployment insurance benefit of roughly $180 plus just $200 in PUC instead of the $600).

The $600 PUC weekly benefit has done much to brace the economy, but cutting it to $200 will weaken that effect. By allowing people to continue buying the things they need to make ends meet, the emergency aid is keeping up aggregate demand. Cutting the benefit to $200 would pull $70.6 million out of our economy each week. By reducing demand through this benefit cut alone, Kentucky could lose over 33,000 jobs through the middle of next year, or 1.7% of our workforce (this estimate is based on the cut in the benefit to $200).

 

 

Fails to provide adequate aid to states and localities

No new funding would be allocated to state or local governments by the HEALS Act. Rather, it would only give state and local governments the ability to use remaining CARES Act funds to cover shortfalls in the 2020 and 2021 fiscal years to maintain spending levels from the 2019 fiscal year. Previously, the CARES Act only allowed states to spend this funding on new expenses directly related to COVID-19, and had to be spent by the end of 2020. In order to use these funds for revenue shortfalls, states have to distribute 25% of what they receive to local governments to help them with their own shortfalls.

This added flexibility for CARES Act funding will not sufficiently protect state and local governments from deep cuts in the coming years. Kentucky received $1.6 billion in CARES Act funding, but has faced major expenses fighting COVID-19. Officials say Kentucky could face a state budget shortfall of 16% – 29% this year and a collective city government shortfall of an additional $180 million in the 2021 fiscal year, to say nothing of county governments and special districts providing critical community services. Recent jobs data already shows Kentucky had 30,000 fewer state and local government jobs in May compared to February. Deeper revenue shortfalls in in the 2021 fiscal year­­­­ will add more public workers to the unemployment lines, and deepen and prolong the recession Kentucky faces.

HEALS provides limited additional funding to education. Nationwide, the proposal allocates $105 billion to schools. K-12 schools would receive $70 billion (with most all of the remainder to higher education), of which 2/3 is targeted toward reopening schools and only available if the school meets certain state criteria for opening to in-person instruction, regardless of whether it’s safe to return or not. In addition to making the K-12 funding contingent upon potentially dangerous conditions and therefore making it unavailable to many schools, this funding could not be used to preserve the jobs of teachers, counselors, and other employees if revenue shortfalls necessitate layoffs.

In contrast, the HEROES Act provided $1 trillion in direct, flexible grants to state and local governments, including a total of $7.4 billion for Kentucky’s state budget and $4.4 billion for Kentucky’s city and county governments. These resources are needed to safeguard students and teachers, support learning in a variety of educational settings, and protect social services, fire departments, public health, health care and other critical public services during the pandemic and recession.

Another critical aspect of the HEROES Act missing from HEALS is the additional 7.8 percentage point increase above the existing 6.2 percentage point temporary increase in the federal government’s share of Kentucky’s traditional Medicaid program costs. HEROES would have brought the federal share of Medicaid spending up to 86%, for a combined boost in federal funding in Kentucky of $1.7 billion over two years. This is especially important as state revenues shrink and Medicaid enrollment grows with Kentuckians losing employment and job-based coverage; enrollment is already up 187,800 or 14.3% since February.

Lacks sufficient aid to families struggling to meet basic needs

Though the HEALS Act does provide another round of stimulus payments, its overall approach to helping families get through the pandemic and recession is deeply inadequate.

The HEALS Act follows the same model as the CARES Act for an additional round of recovery rebates, or “stimulus checks.” The Act would provide $1,200 for individuals making up to $75,000, $2,400 for a married couple making up to $150,000 and $500 per child. Payments are phased out above those income levels to a maximum of $99,000 for individuals and $198,000 for married couples. The only difference is that, unlike CARES, this round of payments would also include dependents over age 16.

However, although it expands stimulus payments to adult dependents, it doesn’t increase the number of eligible children per family (HEROES allowed for up to three children, rather than two in the CARES and HEALS Acts), include immigrant families who pay taxes with an Individual Taxpayer Identification Number or “ITIN,” or increase the amount of the payment. The first round of stimulus payments through the CARES Act  helped halt the economic slide – success that should be expanded upon.

And despite the fact that 1 in 4 Kentucky renters are unsure they’ll be able to make their next rent payment, HEALS fails to extend a nationwide moratorium on rent-based eviction and leaves out over $100 billion in funds provided in the HEROES Act to help people stay in their homes and address housing-related debt. A looming eviction crisis will disrupt families and cause extensive hardship unless Congress extends the moratorium and provides much more in aid, including short-term rental assistance and emergency housing vouchers.

HEALS also fails to address worsening hunger in Kentucky and across the nation. As a growing share of Kentuckians face food insecurity – 1 in 4 Kentucky households in May up from 15% in February – the HEALS Act does not increase Supplemental Nutrition Assistance Program (SNAP) benefits. Nor does it extend a very successful program known as Pandemic EBT, which provides $313 per child who qualifies for free school lunch. The House-passed HEROES Act would have increased the maximum SNAP benefit by 15%, reaching Kentuckians with very low incomes who were left out of a previous SNAP increase in the Families First Act, and also included an extension of Pandemic EBT.

Creates new risks for workers

The HEALS Act creates much higher barriers to litigation for individuals who get infected with COVID-19 at schools, hospitals and businesses. Individuals seeking a remedy in the courts for being infected would need to prove both gross negligence and that the business was in violation of state and local public health guidance before they could even bring suit – an extremely high bar. This “shield” lasts for five years.

Workers already have a limited set of opportunities to hold employers accountable for putting them in harm’s way. Preventing Kentuckians from being able to seek remedy in the courts further exposes them to dangerous conditions amid a global pandemic. And with outbreaks in COVID cases among employees in industries such as long-term-care, meat processing and child care, leaving workers vulnerable runs counter to the fight against the pandemic. Workers’ health is public health.

And where the HEROES Act provided a pay increase for essential workers – in recognition of their added risk of exposure and additional expenses from working while many schools and child care centers are closed – the HEALS Act does not. Nor does it provide an extension of the Families First Coronavirus Act’s paid leave program as was proposed in the HEROES Act.

Kentucky needs a bold economic and health response

Many economists believe that, just to keep from losing economic ground, the federal government needs to invest several times what the HEALS Act would provide. The HEALS Act leaves a broad scope of vital aid to Kentucky families and communities off the table. Kentuckians are already facing a massive loss of income, work and health insurance, and the threat of hunger and eviction looms for many. Until an effective vaccine or treatment is widely available and an economic recovery takes hold, Congress needs to deploy the kind of robust aid only it can. Without it, the pain from the pandemic and recession will be much deeper and longer than necessary.

Statement on Systemic Change and Police Violence

“We join in outrage over the killings of Breonna Taylor, George Floyd, David McAtee and countless others and grieve for the pain and trauma experienced by Black Kentuckians from the systemic racism that pervades our society. We believe Black Lives Matter. We stand in support of the struggle for racial justice.

Police violence is a horrific result of the structural racism that also creates persistent inequalities when it comes to health, employment, education, housing, wealth and so much more. It is a manifestation of a system that inhibits the ability of Black Kentuckians to live in security and safety.

We call on Kentucky’s elected officials to make real, substantive changes to the programs and policies that enable police violence, perpetuate broader racial inequity, and cut short the lives of so many fathers, mothers, sons and daughters. We commit ourselves and our organization to supporting the systemic change needed through work on policy.”

Lessons from the Great Recession: Kentucky and Other States Need More Federal Relief

PDF version: Lessons from the Great Recession: Kentucky and Other States Need More Federal Relief

As the nation faces the economic fallout from the COVID-19 pandemic, it is critical that the federal government design a policy response that builds on lessons from the most recent downturn. Congress provided significant relief to states in 2009 that was essential to keeping the Great Recession from turning into a depression. But the aid was not large enough relative to the depth of the downturn, and it ran out before recovery was achieved. That withdrawal of support slowed the economy in part by hindering the ability of states like Kentucky to provide vital public services to families and communities.

While Congress has provided some state relief during the COVID-19 economic crisis, new forecasts show that the severity of the crisis means states and localities will need much more in aid as they face cratering tax revenues and rising public costs.

Federal aid to states prevented the Great Recession from turning into a depression

Aid to states is one of the most effective policy actions available to make recessions short and shallow. Unlike the federal government, states face balanced budget requirements, limiting their ability to address rising costs for programs like Medicaid amid falling state tax receipts. Without state fiscal relief, resulting budget cuts drag the economy down further. And since states provide many safety net and support services that are even more critical at times of high unemployment, state budget cuts increase the pain of recessions for people and communities.[1]

When the Great Recession hit in the late 2000s, Congress passed the American Recovery and Reinvestment Act (ARRA) to stimulate economic growth. By injecting spending into an economy that was shrinking, ARRA was very effective at halting its collapse and keeping the recession from becoming a depression. The Congressional Budget Office and other analysts estimate that it created millions of jobs and gave a substantial boost just when the economy needed it.[2]

In the case of Kentucky, the federal government provided approximately $3.3 billion directly to the state’s budget (to put that in context, Kentucky’s General Fund budget was less than $9 billion a year at the time). Of the aid, $651 million was through the State Fiscal Stabilization Fund, which provided flexible grants to states to help weather the crisis. Another $2.7 billion was in other funding, including a significant increase in the federal share of Medicaid costs by 10 percentage points (from 70% to 80%).[3] A total of 80% of ARRA aid to Kentucky came in fiscal years 2010 and 2011, as shown in the graph below.

Depth of crisis meant Kentucky needed more in federal aid than was provided to prevent painful cuts

Despite substantial funds provided to states under ARRA, Kentucky was still forced to cut its budget due to the depth of the biggest recession since the Great Depression. The downturn caused a sharp decline in tax receipts and rising costs for programs like Medicaid, for which enrollment increased by approximately 100,000 people due to lost jobs and income. Even when ARRA relief was at its peak in 2010 and 2011, Kentucky cut $514 million in spending. Altogether from 2009 to 2013, the state cut an enormous $1.4 billion from its budget even with the ARRA aid the state was receiving. Those cuts translated into bigger K-12 class sizes, higher college tuition, strained social services and a lack of raises for public employees, among other impacts.[4]

The legislature also raised some modest new revenue on its own during this period to help cushion the blow. In 2009, the General Assembly raised over $150 million a year by enacting a tobacco tax increase and applying the sales tax to alcohol. Without the state revenue increase, budget cuts would have been even deeper.[5]

Federal aid dried up too soon, causing more cuts

The first graph above illustrates how federal aid from ARRA dropped dramatically beginning in 2012 before ending entirely in 2014. As the graph immediately above shows, that withdrawal of assistance resulted in prolonged pain, with Kentucky making additional budget cuts of $250 million in 2012 and $180 million in 2013.

Those added cuts were required in large part because the economy was still in poor shape even while federal assistance was going away, and because the state didn’t raise additional revenue beyond the 2009 tobacco and alcohol tax increases. In 2012, when ARRA assistance dropped sharply, Kentucky’s unemployment rate was still at an extraordinarily high 8.9%. When aid went away completely in 2014, the unemployment rate was still very high at 7.2% and the rate for African American workers in Kentucky, who face more structural barriers to economic opportunities, was still over 10%.

Despite a gradually declining unemployment rate through the remainder of the decade, the state continued to make budget cuts with an additional $728 million in cuts between 2014 and 2019. In part, those cuts came because the economy was still underperforming. The unemployment rate overstated the economy’s strength because some workers dropped out of the labor force due to the extended downturn and were not counted in that rate. Despite the longest economic recovery on record, the share of prime-age Kentucky workers employed in 2019 was still significantly below the nearly full employment economy of the year 2000.

Cuts also continued because one way Kentucky dealt with inadequate funds during the Great Recession was to skip making full contributions to its pension plans. The state resumed making full contributions in 2014 for the state plan and in 2017 for the teachers’ plan, and Kentucky Retirement Systems lowered economic assumptions for its plans due in part to a shrinking state payroll created by budget cuts. The result was much higher pension payments that caused additional cuts elsewhere in the budget.


COVID-19 state fiscal relief so far is inadequate

There are three big lessons to learn from the Great Recession that apply to the fiscal fallout created by the COVID-19 crisis: federal aid to states works, it should be robust and it should last until there is a full recovery.

Without adequate federal aid, state budget cuts drag the economy down further through service reductions and public employee layoffs. In the context of COVID-19, these cuts can also hinder the direct response to the virus through Medicaid, public health, mental health, first responders and more.

In this crisis, Congress has provided some assistance to states. It increased the federal share of Medicaid costs by 6.2 percentage points — a helpful increase, but lower than the 10 percentage points provided during the Great Recession.[6] And instead of providing this assistance through the duration of the economic downturn, it only applies for as long as the federally declared public health emergency is in effect. Congress has also provided Kentucky with $1.599 billion through the Coronavirus Relief Fund (CRF), $410 million for K-12 schools and higher education institutions, and other targeted monies.[7] However, the CRF funds can only be used for costs directly related to combatting COVID-19 and cannot be used to address revenue shortfalls also caused by the pandemic.[8]

It is increasingly clear this aid is not adequate to deal with the scale of the problem. New research from the Congressional Budget Office projects the U. S. economy will shrink 40% in the current quarter, and Kentucky has already processed an astonishing 500,000 unemployment claims, which equals 24% of the state’s workforce.[9] Having so many people out of work will dramatically reduce state sales, income and other tax receipts. In addition, the state is experiencing an increase in expenses to provide support to Kentuckians who are out of work and need extra help. The Courier-Journal reported that 83,000 additional Kentuckians have already become covered by Medicaid.[10] The CBO also predicts the problem will persist, with a U.S. unemployment rate averaging a stunning 10.1% in calendar year 2021 and a still-painful 9.5% at the end of that year.

The bipartisan National Governors Association and other experts estimated earlier that states need at least $500 billion in relief to mitigate the harm to their budgets and help protect the economy – an amount that is several times larger than the aid Congress has provided so far (the new forecasts suggest the gap is even bigger at $650 billion).[11] There are clear tools the federal government can use to meet this need, including further increasing the match for Medicaid and providing flexible grants.[12] Additional aid should contain triggers so that it continues automatically until the economy has fully recovered rather than being limited to an arbitrary amount or allowed to expire when the public health emergency has ended.

Federal aid to Kentucky was essential in softening the economic blow of the Great Recession. But because the aid wasn’t large enough and didn’t continue long enough given the depth of the downturn, our economy underperformed for the remainder of the decade as the state cut a variety of important services from schools to health to infrastructure. It is critical for Kentucky that Congress not repeat the same mistake again this time around.

[1] Chad Stone, “Fiscal Stimulus Needed to Fight Recessions,” April 16, 2020, Center on Budget and Policy Priorities, https://www.cbpp.org/research/economy/fiscal-stimulus-needed-to-fight-recessions.

[2] Congressional Budget Office, “Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from July 2010 to September 2010,” November 2010, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/11-24-arra.pdf. Alan S. Blinder and Mark Zandi, “The Financial Crisis: Lessons for the Next One,” Center on Budget and Policy Priorities, Oct. 15, 2015, https://www.cbpp.org/research/economy/the-financial-crisis-lessons-for-the-next-one.

[3] Kaiser Family Foundation, Federal Medical Assistance Percentage (FMAP) for Medicaid and Multiplier,” https://www.kff.org/medicaid/state-indicator/federal-matching-rate-and-multiplier/.

[4] Ashley Spalding, “State Budget Cuts to Education Hurt Kentucky’s Classrooms and Kids,” Kentucky Center for Economic Policy, Jan. 29, 2018, https://kypolicy.org/state-budget-cuts-education-hurt-kentuckys-classrooms-kids/.Kentucky Center for Economic Policy, “What Does Kentucky Value? A Preview of the 2020-2022 Budget of the Commonwealth,” January 2020, https://kypolicy.org/wp-content/uploads/2020/01/Final-online-draft.pdf.

[5] House Bill 144, 2019 Regular Session of the Kentucky General Assembly, https://apps.legislature.ky.gov/record/09rs/HB144.html.

[6] Jason Bailey, “Kentucky’s Budget Faces Trouble Without More Federal Aid,” Kentucky Center for Economic Policy, April 7, 2020, https://kypolicy.org/kentuckys-budget-faces-trouble-without-more-federal-aid/.

[7] Jason Bailey, “What’s In the CARES Act for Kentucky,” Kentucky Center for Economic Policy,” April 3, 2020, https://kypolicy.org/whats-in-the-new-covid-19-relief-bill/.

[8] U. S. Department of Treasury, “Coronavirus Relief Fund Guidance for State, Territorial, Local, and Tribal Governments,” April 22, 2020, https://home.treasury.gov/system/files/136/Coronavirus-Relief-Fund-Guidance-for-State-Territorial-Local-and-Tribal-Governments.pdf.

[9] Congressional Budget Office, “CBO’s Current Projections of Output, Employment, and Interest Rates and a Preliminary Look at Federal Deficits for 2020 and 2021,” April 24, 2020, https://www.cbo.gov/publication/56335. KCEP analysis of Department of Labor and Bureau of Labor Statistics data.

[10] Deborah Yetter, “Kentucky nursing homes ask state to help with soaring costs of masks, gloves amid COVID-19,” Courier Journal, April 22, 2020, https://www.courier-journal.com/story/news/2020/04/22/coronavirus-kentucky-nursing-homes-seek-help-masks-gloves-cost/2998246001/.

[11] National Governors Association, “Governor’s Request for Third Congressional Supplemental Bill,” March 20, 2020, https://www.nga.org/policy-communications/letters-nga/health-human-services-committee/governors-request-for-third-congressional-supplemental-bill/. Elizabeth McNichol, et al., “States Need Significantly More Fiscal Relief to Slow the Emerging Deep Recession,” Center on Budget and Policy Priorities, April 14, 2020, https://www.cbpp.org/research/state-budget-and-tax/states-need-significantly-more-fiscal-relief-to-slow-the-emerging-deep. Celine McNicholas, et al., “The next coronavirus relief package should provide aid to state and local governments, protect employed and unemployed workers, and invest in our democracy,” Economic Policy Institute, April 27, 2020, https://www.epi.org/blog/the-next-coronavirus-relief-package-should-provide-aid-to-state-and-local-governments-protect-employed-and-unemployed-workers-and-invest-in-our-democracy/. Michael Leachman, “New CBO Projections Suggest Even Bigger State Shortfalls,” Center on Budget and Policy Priorities, April 29, 2020, https://www.cbpp.org/blog/new-cbo-projections-suggest-even-bigger-state-shortfalls.

[12] Matt Broaddus, “Families First’s Medicaid Funding Boost a Useful First Step, But Far From Enough,” Center on Budget and Policy Priorities, April 21, 2020, https://www.cbpp.org/blog/families-firsts-medicaid-funding-boost-a-useful-first-step-but-far-from-enough.

What’s in the CARES Act for Kentucky

Congress has passed and the President has signed a new COVID-19 economic relief bill, the Coronavirus Aid, Relief and Security (CARES) Act. Here are some of its major provisions and what they mean for Kentucky. This blog will be updated as more information becomes available.

Expanded and increased unemployment benefits

One of the most significant components of CARES increases unemployment benefits by $600 a week for the next four months, fully paid for by the federal government. Kentucky’s average unemployment benefit is only a modest $380 a week currently. This improvement will help newly-jobless workers pay bills and make ends meet in the near term (though the $600 will need to be extended for a longer period given the extent of the crisis). The bill also lengthens the time an unemployed worker can receive regular benefits (not including the $600 a week) by an additional 13 weeks — beyond the state’s maximum of 26 weeks — with the federal government paying for all of that extension.

The bill expands eligibility for unemployment insurance by providing what it calls Pandemic Unemployment Assistance (PUA) to workers not normally eligible for unemployment benefits because they are self-employed, furloughed, don’t have a sufficient work history or are seeking part-time employment. That includes independent contractors and “gig” economy workers. Also eligible are those who have quit because of COVID-19 including due to care responsibilities for a sick member of their household and because of closed schools and childcare centers.

PUA will provide no less than ½ the average state benefit (or approximately $190 a week in Kentucky) through December 2020. PUA recipients are also eligible for the temporary additional $600 a week benefit through July 31. All that is paid for by the federal government.

The extra $600 a week alone will bring an estimated $623 million into Kentucky for jobless workers over the four month period, according to one analysis. Importantly, that supplement will not count as income for purposes of determining eligibility for Medicaid and the Children’s Health Insurance Program, helping ensure more unemployed people can receive those benefits.

CARES incentivizes states to provide the option of short-time compensation or work sharing, as exists in 27 states. In work sharing, businesses reduce workers’ hours and employees receive partial unemployment benefits. Under CARES, the federal government will pay half of the cost of these benefits, as well as provide grants for implementation and promotion of the program. Kentucky does not currently offer work sharing. CARES also will reimburse states (like Kentucky) that waive the normal one week waiting period for benefits.

To take full advantage of these unemployment benefit changes, the General Assembly passed SB 150 which allows work sharing as well as the option of counting an unemployed worker’s last 3-6 months of work history in considering whether they are eligible for benefits (including for the additional $600 a week), among other improvements.

One-time rebate checks

CARES provides one-time checks (“recovery rebates”) of $1,200 for individuals making up to $75,000, $2,400 for a married couple making up to $150,000 and $500 per child. Payments are phased out above those income levels to a maximum of $99,000 for individuals and $198,000 for married couples. See a calculator here.

The bill makes low-income people eligible for the rebates (some of whom were excluded or awarded smaller amounts in earlier versions of the bill). In total, Kentuckians will receive $4 billion in rebates.

However, the rebates leave out certain people. The bill only provides rebates for dependents under the age of 17, leaving out elderly dependents, adults with disabilities who live with family members and college students. Additionally, the bill requires income tax filing to receive the rebate, which will create an administrative challenge for people who do not file (Treasury has clarified that Social Security recipients can automatically receive payments without filing). An estimated 30 million Americans do not file, including people in deep poverty, veterans and people with disabilities. There should be public resources provided for free tax filing options like the Volunteer Income Tax Assistance (VITA) program to ensure people file and to limit the profiteering of high-fee tax preparation companies.

The bill also leaves out many immigrant families, including those with children who are U. S. citizens. An estimated 20,650 adult immigrant Kentuckians (with 32,871 children) file taxes with an Individual Taxpayer Identification Number rather than a Social Security Number and are ineligible for the rebate.

While this one-time check will be helpful to those who do receive it, there are no provisions in the legislation for additional payments down the road should poor economic conditions continue, which is likely.

Also, the bill did not include an increase in Supplemental Nutrition Assistance Program (SNAP) benefits, as was included in the Recovery Act during the Great Recession and proposed for CARES. SNAP is particularly effective at reaching low-income families who have even less food security now due to lost jobs and incomes and whose children have reduced access to food because schools are currently closed. The next relief package must include an expansion.

Assistance for state and local governments

The bill creates a Coronavirus Relief Fund for state and local governments that will distribute an estimated $1.732 billion to Kentucky. Of that amount, an estimated $1.599 billion will go to the state and $134 million to Louisville/Jefferson County (the only eligible Kentucky local government under the law).

Kentucky will also receive an estimated $409.7 million through the act’s Education Stabilization Fund. That includes:

  • $203 million for K-12 schools. Those monies are distributed based on a state’s share of Title I funding, a federal program for high poverty schools.
  • $164.6 million for colleges and universities. Approximately 90% of these funds are distributed to directly public and private higher education institutions based primarily on their share of Pell Grant recipients; 7.5% is going to Historically Black Colleges and Universities and other institutions primarily serving students of color; and 2.5% will be distributed by the Secretary of Education to institutions determined to be especially harmed by COVID-19 and the economic downturn. Initial allocations for emergency cash grants to students are here.
  • $42.1 million in emergency relief that the governor can distribute to schools and higher education institutions. Each state’s allotment was determined by a formula that sent 60% to states based on their share of the school-age population (ages 5-24) and 40% based on states’ share of Title I students.

In addition, Kentucky is estimated to receive through CARES:

  • A minimum of $8.29 million in Centers for Disease Control and Prevention grants;
  • $10 million for personal protective and medical equipment for law enforcement;
  • $132.7 million for public transit;
  • A minimum of $25.9 million for homelessness programs;
  • $17.9 million for the Low-Income Home Energy Assistance Program (LIHEAP) to help families pay heating and cooling bills.
  • $6 million for assistance with making elections safer.
  • $65 million in child care funding.

The Families First Coronavirus Act that recently passed also included an increased federal match for Medicaid costs that will result in approximately $480 million in state savings on an annual basis in Kentucky, though this assistance stops at the end of the quarter when the public health emergency is declared over.

While these dollars are a significant, positive next step in providing aid to state governments, much more will be needed to avoid harmful budget cuts and layoffs. State revenues are expected to plummet as the economy shuts down, even while state costs will rise to combat COVID-19 and as more people become eligible for Medicaid due to lost jobs and income. Also, Kentucky’s rainy day fund is too depleted to go far in filling the gap, possessing only the equivalent of four days of state operating expenses.

The legislature recently passed a new state budget that downgraded Kentucky’s revenue forecast by 1% the first year and 1.5% the second year of the new biennial budget. Kentucky’s revised forecast is based on an assumption of 5.8% unemployment next year. Yet in the short term the economy will be much worse. Goldman Sachs recently predicted that U. S. gross domestic product will shrink 34% in the second quarter of the year, which translates to an estimated 251,846 jobs lost in Kentucky by the summer and a state unemployment rate of 16.3%.

Provisions for businesses, hospitals

Other significant elements of CARES include (dollars amount here are nationwide):

  • $349 billion in loans to small businesses (less than 500 employees) that can be forgivable for businesses that agree not to lay off their employees. There is also $17 billion for debt relief for existing Small Business Administration borrowers, and $10 billion for grants.
  • $500 billion for loans and aid to businesses, states and cities (with $46 billion set aside for airlines, air cargo carriers and national security-related businesses). Companies receiving this aid are only required to maintain existing employment levels “to the extent practicable” through September.
  • $100 billion for grants to hospitals and other healthcare organizations for unreimbursed costs related to COVID-19, and other monies for protective equipment and testing supplies.

Kentucky Response to COVID-19: Protect State Economy Through Improved Unemployment Insurance

The COVID-19 pandemic has sparked concerns about an economic slowdown resulting from widespread shutdowns in the global economy, and recent cancellations of large events in the United States. Continued economic chilling will almost certainly lead to layoffs in Kentucky, and so to plan for that, lawmakers in Frankfort and Washington DC need to prepare our unemployment insurance (UI) program to dampen the economic harm caused by rising joblessness.

Federal improvements to UI are needed, but state action is required

The Families First Coronavirus Response Act being considered in Congress would implement a number of stimulus measures, among them being several emergency UI enhancements:

  • States would receive $500 million for immediate help with staffing, technology, systems and other forms of administrative costs for the purpose of providing unemployment insurance benefits. UI recipiency would be conditional on ensuring beneficiaries are aware of their eligibility and are able to apply easily – which these resources would help with.
  • States would have access to interest-free loans to help pay regular UI benefits if they exhaust their trust funds.
  • The US Labor Department would provide technical assistance for states that want to set up work sharing programs as a way of mitigating layoffs and improving labor force attachment by making it possible for employers to offer partial UI benefits to those who go from full time to part time employment. Kentucky does not currently practice work sharing.

Perhaps the most meaningful provision would be that $500 million would be set aside for emergency grants to states that experience a 10% increase number of unemployment claims, and additionally the federal government would pay 100% of the cost of extended UI benefits (benefits provided past 26 weeks). These significant improvements would be contingent on states taking steps to ease eligibility requirements, specifically:

  • Eliminating the “waiting week.” Currently, Kentuckians who qualify for UI benefits are not given the benefits for the first week of their eligibility.
  • Relaxing the work searching requirements. Kentuckians who receive UI must provide proof that they are searching for a job, in order to maintain eligibility.
  • Waiving the charge to employers who experience high rates of layoffs. Currently, UI benefits are paid for by a tax on employers which varies depending on how often and by how much they lay off workers. Waiving the related “experience rating” for employers during this time, in recognition of the broader economic conditions, would help ease the economic burden on businesses and possibly reduce further economic harm.

For Kentucky to take advantage of these significant federal enhancement measures, it would need to make statutory changes both to the waiting week and to the employer contribution rate schedule. The work searching requirements are in regulation and could be changed through administrative action. Governor Beshear announced on March 16 he is taking steps today to waive the waiting week and work search requirements while the State of Emergency is in effect.

Kentucky needs to make additional changes to prepare its UI program for a spike in unemployed

UI in Kentucky already only replaces 45% of lost wages and as of last year, only 1 in 5 unemployed workers received UI benefits, down from 2 in 5 in 2009. This low rate is problematic not just because fewer people and families are being helped by the system, but also because wide recipiency helps to dampen the broader effects of economic downturns. During the last recession, UI generated $2 in economic activity for every $1 that was spent through it, ultimately reducing the decline in GDP by 18% and preserving as many as 1.8 million jobs nationwide. As we face the possibility of  layoffs and increased unemployment, UI benefits should be more widely available and more robust for those who receive them.

Specifically, Kentucky should make changes aimed at improving its recipiency rate, some of which is required in order to receive enhanced federal UI benefits under the Family First Corona Virus Response Act:

  • Reassessing the accessibility of our new online system for applying for UI benefits. According to 2018 census data, 21% of non-elderly Kentucky adults lack high-speed internet access and 8% have no internet access at all. And under social distancing guidelines, public access at libraries, for instance, may be limited.
  • Ensuring low-wage workers are eligible based on their incomes, as there is a floor for how much you can earn and claim UI benefits (our monetary eligibility standard was raised in 2018 by House Bill 252)
  • Broadening our “good cause” definition of leaving employment. Kentucky’s definition extends only to being laid off because the employer didn’t have work for the individual, but the state could broaden this definition to include an individual voluntarily leaving a job due to harassment, domestic violence, excessive commuting requirements or unfair/erratic scheduling practices. More specifically, the state should also include leaving because of caretaking responsibilities for a sick or quarantined loved one or leaving because it is unsafe at their place of work – which could be especially pertinent as COVID-19 becomes more widespread.
  • Implement a work sharing program as 27 other states have done. If the Family First Coronavirus Response Act is passed, the state could take advantage of federal technical assistance for setting up such a program.
  • Adopt an “Alternative Base Period” (ABP) as 41 other states have done. Currently, to determine if an unemployed worker has earned enough to qualify for UI benefits, their earnings from the first four of the previous five quarters of work (prior to filing for benefits) are considered. This leaves out many part time, low wage and seasonal workers who may have had higher earnings in the previous quarter (the “lag quarter”), or the quarter in which they applied (the “filing quarter”) than earlier in the year. By one estimate, having an ABP would allow 1 in 5 workers currently disqualified to qualify, and adopting it only increases the overall UI payouts by 4-6%. As restaurants and bars close, and as a slowing economy reduces seasonal work like the building and construction trades, adopting an ABP is a critical improvement needed for our UI program, but requires a change to the law.  

One indirect but meaningful benefit of higher recipiency rates, particularly as we face a public health emergency, is that receiving UI can be beneficial to health. One report found that unemployment benefits led to a 5% lower likelihood of reporting poor health, and the effect was strongest among workers who earn low wages and have less education. Losing less in wages during the likely downturn can help ease stress and the difficult choices people face between paying the bills and going to see the doctor when needed.

Kentucky should also raise its average weekly benefit amount in order to maximize the economic benefits of wage replacement. As of the third quarter of 2019, the average weekly benefit amount for a UI beneficiary in Kentucky was $366, compared to the average weekly wage prior to being laid off of $818. By raising the wage replacement rate, there is evidence to suggest that Kentucky could slow layoffs that result from decreased local demand.

 

For specific changes that should be made to Kentucky’s statutes and regulations in order to prepare our UI program, click here.

Updated on March 16, 2020.

Revenue Options That Strengthen the Commonwealth

Currently, too many tax breaks drain money that is needed to shore up and sustain public schools, higher education and workforce development; teacher and state worker pension systems; preschool, child care and other family supports; health care, public and mental health; and other priorities. By generating new revenue to invest in the building blocks of our state and meet our obligations, cleaning up tax breaks will make Kentucky stronger. This new revenue options report lists ways to do that important work.

Kentucky’s fiscal challenges were exacerbated by the Great Recession, but pre-existing, structural problems with the tax code hold back revenue even when the economy is strong. Due to tax breaks growing in both size and number, the General Fund has deeply eroded as a share of our economy since the early 1990s after tax changes as a part of the Kentucky Education Reform Act (KERA) were passed. Following KERA, new General Fund revenues in 1991 exceeded $700 million – the majority from getting rid of income tax breaks. But as the graph below shows, today the General Fund is even smaller as a share of our economy than it was before KERA. If the General Fund were still 7.3 percent of the economy as it was in 1991 we would have $3.1 billion more in 2020 to invest in Kentucky.

Click here to read our menu of tax reform options.

House Bill 1 Still Focuses on Punitive Measures that Take Assistance Away

The new version of House Bill 1 introduced in committee today, like the original proposal, contains a number of misguided and punitive measures that create barriers to assistance for Kentuckians who struggle to make ends meet, including proposals that are administratively complex and likely run afoul of several rules. Those elements should be abandoned, and a few potentially positive ideas in the bill, including a new health coverage provision, should be explored further as part of a supportive approach to protecting Kentucky’s safety net.

HB 1 creates barriers to food, cash, medical and other forms of assistance

Opens up risk of lifetime bans. Under HB 1, people can be banned from programs that help with groceries, child care, medical bills or basic cash assistance in several ways:

  • Kentuckians convicted of a drug-related felony who are released from incarceration and fail to receive a diagnosis and enter substance use disorder (SUD) treatment within 90 days are banned from Medicaid. These individuals could re-gain Medicaid coverage if they prove to the Cabinet that they have entered SUD treatment after that point. It can take up to 3 months after applying for Medicaid for someone to get coverage, making it difficult to enroll in SUD treatment prior to the 90 day limit. Also, for individuals who are convicted of a drug-related felony but either do not have an SUD or received treatment while incarcerated, entering SUD treatment is not necessary, yet they would still be locked out for life from ever receiving medical assistance. A similar ban in SNAP in Kentucky has led to thousands losing food assistance and likely more who never applied due to a past conviction.
  • Kentuckians who receive income assistance and withdraw cash which they use for purposes other than those deemed “necessary for the welfare of the family,” and are sanctioned three times, can lose cash assistance or the use of an EBT card for life.
  • Kentuckians who sell or traffic benefits on their EBT card twice can lose access to all forms of assistance administered by the Cabinet for Health and Family Services (CHFS) including Medicaid, SNAP, TANF and child care for life.

Bans like these do not promote the objectives of programs aimed at helping people when they’re struggling to get by. Taking basic cash, food, medical and child care assistance away from one family member also makes it harder for the rest of the family to meet their needs. And there are ramifications and costs for entire communities, as those who lose benefits will turn to already-strained local charities, health departments and hospitals, and are more likely to end up in jail.

Takes food away from homes with kids. Non-parental adults living in a home with children would lose SNAP benefits if they are unable to meet a work reporting requirement more than 3 months in a 36 month timeframe, regardless of the barriers they face to reporting consistent work hours. When anyone in a household loses food assistance, it reduces the overall food budget for everyone in the household, and this provision is specific to people who live in a home with children. For example, an aunt living in the home with her family would be at risk of losing her benefits. Without those additional dollars for groceries, money would then have to be diverted from other expenses like rent, childcare or transportation to support the family food budget.

Brings back Medicaid barriers. The proposal also reopens the possibility of taking Medicaid coverage away from those who don’t meet a work reporting requirement – again, regardless of the barriers they face to consistently reporting adequate work hours. This requirement would apply to people enrolled in Medicaid expansion for more than a year if the state General Fund appropriation for Medicaid expansion reaches 50% of General Fund spending on Medicaid overall (it is currently only 10.7%). It is well documented that a Medicaid work reporting requirement would reduce enrollment without improving the employment or well-being of those who lose their coverage. Kentucky’s plan was twice thrown out by a federal court, and a similar plan was recently struck down by the U.S. Court of Appeals.

Creates asset cap for programs that help kids. The state already requires KTAP applicants to complete an asset test to ensure people don’t own more than $2,000 in savings and other forms of liquid assets. HB 1 actually raises that cap to $2,500, which is a modest but helpful change.

However, it newly applies that cap for those seeking assistance from other programs under Title IV of the Social Security Act, which includes foster care, adoption assistance and other child welfare programs. In addition to discouraging building assets or savings for needs like medical emergencies, asset tests make it more difficult for qualified children and families to verify their eligibility, meaning they could lose these forms of assistance. House Bill 1 doesn’t specify if the asset test would apply to the child or the foster parent under this provision.

Proposal requires new, complex administrative burdens

Tracks cash purchases from KTAP participants. HB 1 greatly increases administrative burden in the Kentucky Transitional Assistance Program (KTAP). First, KTAP participants can only withdraw cash for “goods and services necessary for the welfare of the family” and the CHFS would be required to track cash withdrawal and investigate appropriate usages. It is unclear how CHFS could determine how cash was spent and whether it originated from a KTAP withdrawal of funds. The bill instructs the Attorney General to take action against the Cabinet if it does not monitor and investigate these uses of cash.

Brings back administrative costs involved with tracking work reporting requirements for those receiving Medicaid. A recent GAO study showed that, prior to rescinding the 1115 waiver that included a work requirement like this, Kentucky was planning to spend $271.6 million in combined state and federal dollars to administer such a system. The original plan actually increased spending per-person in order to develop large tracking and reporting systems. By including this plan in HB 1, the state would return to a complex administrative system that would drain budgetary and staff resources from other parts of the cabinet.

Many components violate federal guidance, rules and law

While states have considerable flexibility in how they implement federally-supported programs, there are still federal guardrails that limit the extent to which states can deviate from the core purpose of safety net programs – to provide people facing barriers to economic security with assistance to make ends meet. HB 1 violates those limits in each of the public assistance programs it changes:

  • Federal courts have recently and repeatedly disallowed states including Kentucky from making “community engagement” (i.e., work reporting requirements) an eligibility criteria for Medicaid coverage.
  • Medicaid law doesn’t allow bans contingent on recovery status or for people with a drug-related felony conviction.
  • Federal laws don’t allow for someone to be denied benefits in one program (such as the Child Care Assistance Program or Medicaid) because they were banned from another.
  • It is unclear if Title IV of the Social Security Act allows participation in foster care, adoption assistance or other child welfare programs to be contingent on an asset cap.

HB 1 opens possibility of new health insurance option for some Kentuckians with low incomes

House Bill 1 proposes a new temporary health coverage option for those who earn between 138% and 200% of the federal poverty level (or FPL, which would be between $17,650 and $25,580 respectively for an individual), who had formerly been covered under Medicaid. The plan would give broad latitude to CHFS to design and administer the program with the only parameter being that premiums and cost sharing rise 25% for every 15% rise in income above 138% FPL. Participating individuals could only use the coverage for a year after exiting Medicaid, with the possibility of being granted an additional year by CHFS on a case-by-case basis.

Expanding coverage opportunities for low-income Kentuckians could be helpful for some who don’t receive affordable health benefits at work, but only if the coverage is adequate and the cost sharing is as affordable as what is already available on the health insurance exchange. The bill does not designate a ceiling or a floor for how much the insured’s financial responsibility would be, nor does it lay out a list of minimum benefits – areas where regulations could potentially make this proposal ultimately more harmful than helpful. For instance, if the plan were to be “self-insured” by the Cabinet, it would not have to comply with the essential health benefits (things like maternal health, prescription drugs, preventive screenings and mental health care) that other Medicaid plans are required to do. The lack of details around benefit design and participation makes it difficult to determine how beneficial it would be or how much it would cost.

Bill explores several incremental improvements

The bill does provide several modest and potentially helpful provisions such as making SNAP participation simpler and more accessible for older Kentuckians and providing SNAP for people no longer receiving KTAP.  

Incremental improvements like these are important, but should be explored further without the aforementioned punitive measures, which will not improve the effectiveness of public assistance programs in meeting their established purpose. Furthermore, they do not reflect the challenging reality of life for Kentuckians who are already doing their best to make ends meet. 

Governor’s Budget Makes Modest Increases to Education Funding and Selected Other Areas, Raises Small Amount of New Revenue

Governor Beshear’s budget proposal to the General Assembly contains small increases in spending for P-12 education and provides funding for other targeted areas including relief for quasi-governmental organizations facing spiking pension costs and money to hire more social workers. The plan stops the overall trend of budget reductions Kentucky has been experiencing, though in many areas its modest funding levels are not enough to prevent continued erosion due to inflation, which is projected at approximately 2.5% a year according to the Congressional Budget Office.

The governor proposes to pay for additional spending by raising $148 million in new revenue over the biennium from tobacco taxes, sports betting and a higher limited liability entity fee. The budget uses $288 million of one-time fund transfers and $64 million from other new resources.

Budget provides targeted dollars to P-12 public education

The budget provides monies for a $2,000 raise for teachers in 2021, which is equivalent to a 3.7% increase on average (those funds are provided again in 2022 but with no additional raise, and no increase is provided for classified employees). The budget provides a 1% increase in the SEEK per pupil base guarantee for schools in 2021, and a 0% increase in 2022. As in the past, a growing share of the guarantee will come from local school districts (the state portion goes down), and the guarantee will decrease once inflation is taken into account. The broader SEEK formula also does not increase funding for student transportation, which remains at approximately two-thirds of the statutorily required amount.

The budget provides some funding that had been completely cut for textbooks in the last budget, putting in $11 million each year; funding for textbooks had been $21 million back in 2008. It does not restore the 6.25% cut to preschool contained in the last budget, but does provide $5 million each year to support preschool in low-income areas. The budget does not increase funding for Extended School Services, which had also been cut by 6.25%. It funds the $18.2 million in school building upgrades mandated by last year’s school safety legislation through bonding, but does not fund the rest of the legislation.

Some of the additional funding for P-12 education comes from $85 million in SEEK funds originally budgeted in the current year but now expected to go unspent.

Proposal provides 1% increase for higher education

The plan provides a modest 1% increase in funding for higher education institutions in 2021, or $8.6 million, following substantial cuts stretching back to 2008. It does not put any of the higher education appropriations into the performance funding system which, as we have noted, is disadvantaging universities and community colleges with more low-income students and students of color — especially in a context of declining resources to higher education institutions. While the increase in the first year stops the pattern of cuts to universities and community colleges, funding for higher education institutions will still be $191 million behind 2008 levels, not even counting for inflation (and 36% behind with inflation).


Funding for need-based college scholarships improves compared to the prior budget (7,300 need-based College Access Program (CAP) scholarships per year), though it goes down compared to what was funded in the current year due to a one-time lottery surplus. The budget improves funding for need-based aid up to 87% of the statutory funding requirement.

Budget provides targeted funding in several areas, 1% raise each year for state employees

The budget provides for 350 new social workers to deal with the crisis in child protective services, a big increase to help deal with caseloads that are currently twice the recommended level. It provides funding to protect Medicaid expansion and the extra dollars needed to match federal funding for the Kentucky Children’s Health Insurance Program, as well as $1 million each year for outreach to help address disturbing recent decreases in health coverage for kids. It provides 500 new Michelle P waiver slots and 100 new Supports for Community Living waiver slots that provide community-based care for individuals with disabilities.

The budget fully funds the actuarially recommended pension contribution to the Kentucky Retirement Systems for state employees, including funding at 93% of pay for non-hazardous state workers. For quasi-governmental organizations like community mental health centers, health departments, regional universities and domestic violence agencies, it provides significant relief by freezing their funding at a lower level of 67% of pay and providing dollars to help make that contribution. It prevents those agencies from leaving the retirement system, an option created under House Bill 1 this summer that would freeze the pensions for up to 6,700 employees and shift costs back to the system. The budget provides full funding for the Teachers’ Retirement System, including the funding for health insurance coverage for teacher retirees under the age of 65.

The budget provides a 1% raise for state employees in 2021 and another 1% in 2022; they had not received across-the-board raises for 8 of the previous 10 years. It also provides raises for state police, and additional dollars for the state police lab. It reinstates funding for a few small areas that had been cut, including the Commission on Women and the University Press of Kentucky.

The budget adds only $10 million to the rainy day fund. That brings it to $316 million, or only 2.6% of the budget — less than the 5% goal set in statute as a minimum benchmark to help prepare for a recession. That keeps Kentucky’s rainy day fund among the poorest funded in the country; the median state rainy day fund was at 8% as of 2020, and 15 states have at least a 10% balance.

Plan raises some new revenue and uses one-time dollars

The governor’s proposal includes a small revenue plan. It raises the cigarette tax by 10 cents, puts a tax on e-cigarettes/vaping, increases the tax on other tobacco products and raises the limited liability entity (LLE) minimum tax from its current $175 to $225.  LLEs are businesses that are not organized as corporations, but that receive the same legal protections. According to one estimate, 82% of LLEs only pay the minimum fee because the tax exemption from paying the full LLE tax is so generous. The $175 fee was not indexed for inflation when it was created in 2006, and $225 simply makes the inflation adjustment over that time period. The budget is also built on the assumption of revenue from legalizing sports betting.

The budget uses $288 million in fund transfers over the biennium, less than the $609 million used in the last budget. The biggest sources are the Petroleum Storage Tank Fund, from which it transfers $93 million (the budget proposes to issue $50 million in bonds related to this fund), and Department of Insurance fees, from which it transfers $62 million. It does not take money from the public employees’ health fund, as had been used in the past. In addition, the budget counts on $64 million in other resources  including $36 million from enhanced revenue collection through the hiring of additional staff.

Important Conversations at KCEP’s 2020 Policy Conference


KCEP’s 2020 policy conference (registration now open) will feature speakers, panels and conversations about critical issues facing the commonwealth. In addition to a presentation from KCEP about the 2020-2022 Budget of the Commonwealth and a keynote from Jared Bernstein, the four breakout sessions described below will be offered.

Advancing Criminal Justice Reform Through Addressing Cash Bail

Kentuckians presumed innocent should not have their freedom contingent on how much money they have, the color of their skin or where they are arrested. But Kentucky counties widely differ in their use of cash bail, including how high they set it. People incarcerated before they go to trial lose income and employment, are more likely to be found guilty in trial, receive long sentences and plead guilty even when innocent. High rates of pretrial incarceration also contribute to jail overcrowding. This panel explores pretrial practices in Kentucky and the policy changes that are needed.

Moderator:
Rev. Dr. Don Gillett of the Kentucky Council of Churches and Senior Pastor at East Second Street Christian Church (Disciples of Christ)

Panel Guests:

  • Jasmine Heiss, Campaign Director for In Our Backyards, Vera Institute of Justice
  • Shameka Parrish-Wright, Site Manager, The Bail Project – Louisville
  • Ashley Spalding, Senior Policy Analyst, Kentucky Center for Economic Policy
  • B. Scott West, Deputy Public Advocate, Kentucky Department of Public Advocacy
  • Tom Wine, Commonwealth Attorney in Jefferson County

Funding Kentucky’s K-12 Schools

Kentucky’s preschool and K-12 classrooms have experienced a decade of state budget cuts, and we’re spending far less on students in poor districts than we are in more affluent communities. This panel will explore the consequences – especially given high poverty in many parts of the state – the need for the 2020 General Assembly to reinvest in schools and the impacts of diverting resources to charter schools and proposed private school tax breaks.

Moderator:
Anna Baumann, Senior Policy Analyst, Kentucky Center for Economic Policy

Panel Guests:

  • Eric Kennedy, Director of Government Relations, Kentucky School Boards Association
  • Dr. Julian Vasquez Heilig, Dean of the College of Education, University of Kentucky
  • Dr. Elaine Weiss, Research Associate, Economic Policy Institute

Protecting the Safety Net

Medical, food and cash assistance are critical to hundreds of thousands of Kentucky families who still struggle to make ends meet. Yet last legislative session there were concerning proposals to weaken these programs, and discussions continue in Frankfort about possible harmful changes. Experts from Kentucky and Washington D.C. will discuss the importance of programs like SNAP, TANF and Medicaid, attempts in other states to restrict who can use them and how Kentucky can protect our safety net moving forward. 

Moderator:
Dustin Pugel, Policy Analyst, Kentucky Center for Economic Policy

Panel Guests:

  • Ed Bolen, Senior Policy Analyst, Center for Budget and Policy Priorities
  • Jason Dunn, Policy Analyst, Kentucky Voices for Health

New this year! Budget Deep Dive Q&A

Kentucky’s budget is our most important statement of our values, but is a complicated and often overwhelming topic. This year the Kentucky Center for Economic Policy has added an additional budget session to answer all of your burning questions about the budget and where the revenue we generate comes from. Conference participants will be able to text in their budget questions throughout the day and there will be be time to take additional questions during this session.

Moderators:

  • Anna Baumann, Senior Policy Analyst, Kentucky Center for Economic Policy
  • Ashley Spalding, Senior Policy Analyst, Kentucky Center for Economic Policy
  • Pam Thomas, Senior Fellow, Kentucky Center for Economic Policy

Click here to see the agenda.