Building a Kentucky Workers Can Afford

Hard work runs deep in Kentucky. Kentuckians dug the coal that powered the 20th century and raised the food that fed a nation. Now, workers are more likely to move heavy boxes, take patients’ vital signs, assemble cars, or serve customers. Kentuckians show up to work each day to take care of their families and strive for a better life. And it’s their efforts that drive the whole economy.

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But while more working-age Kentuckians are in the labor force than ever before, many are not getting ahead. There aren’t enough good jobs that pay living wages. Plants and industries have shuttered, leaving addiction and unemployment in their wake. And getting more education no longer guarantees a good job.

Many workers are angry. Their paychecks don’t reflect their efforts and wages aren’t keeping up with the cost of living. Rent is rising, homeownership and retirement are increasingly out of reach, and essentials like groceries and electricity cost more while bills and debt pile up. 

Meanwhile, working families lack the tools and opportunities they need to build a good life, from affordable housing to health care. More people could be working in good jobs that meet critical needs, but too few leaders are pushing to make that happen.

Instead, the economy is increasingly rigged by the powerful few for their own benefit. Wealthy corporations have become monopolies, jacking up prices, keeping down wages and pushing out mom-and-pop businesses. While Kentuckians are busy getting by, politicians pass laws that create more billionaires and leave the working class struggling to make ends meet.

Every year in Frankfort, corporate lobbyists push an agenda that serves their interests. They prioritize tax breaks skewed to the ultra-wealthy and corporations that reduce resources for public needs; attack unions, worker safety, unemployment benefits and even the right to a lunch break; and try to take away health care and food from our kids and neighbors. And while the elites are picking families’ pockets with failed trickle-down policies, some politicians try to get workers to point fingers at each other.

The working class drives prosperity, and it’s time for an agenda in Frankfort that puts them first. From the state’s rural counties to our biggest cities, it’s Kentuckians—whether white, Black or brown—who make it all go. Supported by the right policies, ones that reward their efforts and prioritize their concerns, more Kentuckians could work in family-supporting jobs that make everyone better off.

This report, which contains ideas proven to work in other states and in Kentucky’s past, shows how.

Growing an economy that works for workers

Two key strategies are needed to build an economy that puts Kentucky workers first. The first is fixing broken rules to improve job quality and worker power while creating more economy-boosting jobs. The second is working together as Kentuckians to meet pressing public needs and address the cost of living.

Those strategies drive economic development by:

Increasing affordability. Reduced burdens for health care, retirement, housing, education and more make it easier for people to live in Kentucky and for businesses to operate here, reducing the share of young people who move away and making Kentucky more attractive to locate.

Creating jobs. Working together to build a better Kentucky is labor-intensive—care work, construction and more—creating good jobs for Kentuckians who want and need meaningful, living-wage employment.

Expanding local spending. When workers have more money in their pockets and investments in public needs are made, more dollars circulate in communities and less gets funneled to Wall Street speculation and luxuries for the wealthy.

Growing skills and productivity. A better-educated workforce, increased participation in the workplace and a healthier population will make Kentucky workers, businesses and institutions more innovative, creative and productive.

Increase Job Quality

Improve wages and working conditions

For decades, suppressed wages have left Kentucky workers struggling to make ends meet. But Kentucky’s leaders can act to boost worker pay. The minimum wage has been all but abolished as the legislature has allowed it to remain stuck at $7.25 an hour for 16 years. The state should phase in an increase to $17 an hour, raising wages for 478,000 Kentuckians (or 26% of Kentucky workers). Low-wage workers would receive an average raise of 14% as a result. Kentucky should also increase the sub-minimum wage for tipped workers, which has been stuck at $2.13 an hour since 1991.¹

The state should also enact workers’ rights legislation to strengthen and enforce common-sense rules and guardrails. That includes cracking down on misclassifying workers as independent contractors; fixing rules that keep many workers from qualifying for overtime pay; publicly exposing corporations that repeatedly violate laws protecting workers; creating stronger labor standards for workforce funds, public contracts and tax breaks; requiring that jobs provide paid sick days; and improving access to hard-to-get unemployment insurance for laid-off workers.

Grow unions

Past job improvements in Kentucky happened because workers organized and fought for them. But organized labor has been under attack, and the share of Kentucky workers who are union members has fallen from 26% in 1979 to 11% today.² Union workers make an average of 13% more than non-union workers and are more likely to have health and retirement benefits. In contrast, workers receive lower wages on average in so-called right-to-work states, and those states are not better at growing jobs.³ Kentucky should repeal right-to-work and allow workers to build strong organizations of their own.

The state should also restore the prevailing wage law that ensures high quality in construction projects and a fair shot for local, skilled labor. In addition, Kentucky should expand collective bargaining for state and local public employees and for publicly-funded services like Medicaid-supported home care workers and state-funded family child care providers. It should also require and promote the use of union labor on publicly-subsidized projects through changes to procurement regulations and incentive programs.

Make education and training affordable

The costs of higher education and training are increasingly out of reach in Kentucky. Tuition has skyrocketed in recent decades and an estimated 616,000 Kentucky residents have outstanding student loans that total over $20 billion.⁴ The state should create more affordable options for Kentucky workers to acquire skills and education. That includes expanding access to union apprenticeships through the pro-union policies described above and by creating and funding pre-apprenticeship programs that support a variety of people preparing for a career in the trades.

The state has also cut funding for higher education institutions by one-third over the last 15 years after accounting for inflation, worsening affordability for students and job quality for higher ed workers.⁵ The state must reinvest in higher education as a public good. It should also make Kentucky residents attending a community college or four-year public university eligible for scholarships equal to two years of community college tuition (currently $4,536 a year for two years). As a “first dollar” program, such scholarships would free up Pell Grants and other aid to offset the cost of attendance, thereby helping more working-class students complete their degrees and credentials and reducing student debt.

Strengthen communities

Build affordable housing

Housing affordability is a crisis for many Kentucky workers, and homelessness is growing. Kentucky lacks an estimated 206,207 apartments and homes that it currently needs, a deficit that is projected to grow by more than 80,000 units in five years.⁶ The state should set a goal of cutting its housing gap in half over the next decade. It should jump-start action by appropriating $500 million now from the $3.76 billion in the state’s Budget Reserve Trust Fund to the Affordable Housing Trust Fund (AHTF), and use the dollars to build affordable, mixed-income housing that especially prioritizes those who can least afford a place to live. The AHTF should partner with philanthropies, federal programs, banks, the state’s own significant investment funds, and employers to leverage additional dollars, and work with local governments to acquire land and develop infrastructure needed for homes.

Kentucky should also increase consistent funding to the AHTF by implementing a graduated surcharge on the real estate transfer tax for high-value homes (28 states have a higher rate than Kentucky), an inflation update to the recording fees that go to the AHTF (which haven’t been adjusted since 1992), and a tax on short-term rentals that take dwelling units off the market.⁷ The state should promote and require regulatory reforms to allow more affordable housing development in cities. And Kentucky should ease current housing costs, including by creating a state-funded property tax circuit breaker program that provides a refund for property taxes that exceed a reasonable share of income for homeowners and renters.⁸

Reinvest in public schools

The state should get public school funding back on track by restoring funding to 2008 levels, and can take a big step toward that goal by putting $718 million more per year into public education (an amount equal to a half-point income tax the General Assembly has enacted three times now). With that amount of reinvestment, Kentucky could afford an average 8% raise for teachers and classified employees across school districts; the hiring of 2,658 (or 5%) more teachers and certified staff for smaller class sizes, expanded preschool, restored course offerings, and more mental health counselors; and $59 million a year more for school meals (including nutritious food bought from local farmers), additional bus drivers, family resource centers, afterschool programs and other needs.¹⁰

Increase resiliency

Kentucky has had more declared natural disasters than any state since 2000. Extreme weather threatens life and property and causes insurance and energy costs to soar. Kentucky should increase resiliency and create jobs by developing statewide and local resiliency plans and investing an initial $300 million from the $3.76 billion Budget Reserve Trust Fund into a fund for resiliency. Pew reports that “every $1 spent on mitigation and resilience can return up to $13 in benefits through avoided damages, reduced disruptions and faster recovery.”¹¹

Fund investments could prioritize land and infrastructure improvements that protect against flooding, tornadoes, and wildfires, as well as audits of homes with financing available for improvements. The state could also create a Kentucky Colonels Corps, modeled after the Civilian Conservation Corps, to provide young people with 1-year living wage jobs making their communities more resilient; improve early warning systems, shelters, and disaster staffing; and shore up an increasingly unaffordable homeowners’ insurance market.¹²
Kentucky should also create jobs and mitigate rising energy prices by enacting a portfolio standard that holds utility companies accountable through Public Service Commission rules for increasing reliance on low-cost energy efficiency and clean renewable energy and for helping residents who face unaffordable utility bills, including with pay-as-you-save (PAYS) home improvement payment plans and caps on bills based on a percentage of income.¹³

Support families

Help kids thrive

Improving child health and well-being is essential, as is helping Kentucky workers afford to raise families. To address the costs of childrearing, Kentucky should create a monthly child allowance of at least $1,000 annually per child and $1,200 per child under the age of 6, a version of which is available in 14 states in the form of a refundable child tax credit. Such a program would lift approximately 20% of Kentucky’s kids above the poverty line.¹⁴

The state also should directly support quality caregiving in a child’s early years. That starts with 12 weeks of paid family leave available to all workers through a state program, as exists in 13 states. Kentucky should also phase in universal public pre-school for 3- and 4-year-olds. That expansion should be combined with affordable child care that expands the Child Care Assistance Program by increasing reimbursement rates to help make centers financially viable and increasing eligibility to gradually cover all Kentucky families, with family costs capped at no more than 7% of income.

Fight rising health care costs

Health care costs are increasingly unaffordable, worsening Kentuckians’ health, squeezing family budgets, driving up medical debt, and weakening our whole economy. Ultimately, the United States needs a universal health care system like most wealthy countries have. In the meantime, the state can make progress by better coordinating its purchasing and regulatory power. Over 40% of the insured population in Kentucky is covered by the state through Medicaid, KCHIP, the Kentucky Employees’ Health Plan (KEHP), and Kynect, and Kentucky spends $800 million a year subsidizing employer-based insurance through the tax code.¹⁵

Kentucky should create a basic health plan that allows people with incomes somewhat above eligibility for Medicaid to buy into the program at an affordable cost; establish a reinsurance program that makes health care options more affordable for small businesses, farmers, and others on Kynect; and explore an employer public option to expand the buying power and leverage of state spending and spread administrative costs.¹⁶

In addition, the state can use its regulatory power to better take on profiteering in the health sector. Kentucky can require greater price transparency and set spending targets and caps; enact a Patients’ Bill of Rights that limits out-of-pocket costs for high-need prescription drugs, prior authorizations, inappropriate claims denials, and other harmful practices; and facilitate relief from burdensome medical debt.¹⁷

Expand secure retirement

Kentuckians are facing a growing retirement crisis, with only 43% of workers possessing a retirement plan at work even as the aging of the baby boomers swells the elderly population. Low-wage workers and workers at small businesses are even less likely to have retirement savings. At the same time, Kentuckians with retirement savings rely on inefficient private 401k plans that cost twice as much to deliver benefits as a traditional pension plan due to higher Wall Street fees and inefficiencies. Without additional investment in a secure retirement, more seniors will end up neglected, and already-strained adult children will take on even more caretaking duties.

Kentucky should leverage the success of the Kentucky Deferred Comp program, which has  operated for over 50 years; serves over 85,000 state, school, and local public employees; and has $4.2 billion in assets under management. The state should expand the program to make it available to all Kentucky workers at all places of employment. Currently, 20 states operate a version of this type of program covering over 1 million workers. Kentucky should auto-enroll all employees while allowing individuals to opt out. Wider participation in the program will create economies of scale that will further lower fees and allow the possibility of risk-sharing mechanisms that can help protect retirees.¹⁸

Kentucky should also increase home- and community-based care through Medicaid, including by expanding the Program of All-Inclusive Care for the Elderly (PACE) jointly funded by Medicare, exploring the creation of an affordable state long-term care insurance program, and helping seniors stay in their homes by creating a property tax deferral program at no cost to the state or localities.¹⁹

Balance the tax system

Kentucky can pay for many of these strategies with their resulting economic benefits; the revenue sources identified above; and the savings that will result from less spending on incarceration, the child welfare system, Medicaid-funded nursing homes, and other safety net programs; and reduced economic losses due to poorer health. The additional revenue needed can be raised by better balancing our upside-down tax code. As shown below, working-class Kentuckians pay far more of their income in all state and local taxes than the wealthy do.

This imbalance has gotten much worse in the last ten years due to enormous federal and state income tax cuts. The richest 5% of Kentuckians now pay an astounding $3.4 billion less a year in state and federal taxes than if those cuts had not been made.²⁰ At the same time, the wealthy have watched their incomes soar and their investment portfolios balloon. A windfall tax on the wealthy that asks those at the top to chip in for Kentucky’s needs would go a long way in funding the investments requiring new resources in this report.

This revenue could be raised by restoring a graduated income tax like most states already have in place; taxing concentrated wealth through a wealth proceeds tax and taxes on wealthy estates and property; and closing corporate loopholes, including the hiding of profits in tax havens and other tax breaks.