Last week, the Kentucky House of Representatives passed its version of a new, two-year state budget. Totaling nearly $130 billion over the biennium, the plan includes funding increases for K-12 public education, meets public pension obligations, increases Medicaid waivers and supports for those with intellectual and development disabilities, and provides some assistance for the state’s beleaguered child care industry.
House Bill 6 would also grow the state’s Budget Reserve Trust Fund to more than $5 billion by the end of the biennium. Depending on your point of view, those savings reflect conservative fiscal policy or a significant missed opportunity.
“You can’t continue to stuff money in a mattress when your roof is leaking. We need a good Rainy-Day Fund but we’re way beyond that,” says Jason Bailey, executive director of the Kentucky Center for Economic Policy.
“What we’re hearing across the board is that Kentucky no longer needs to operate from a sense of scarcity and fear,” says Anne-Tyler Morgan, attorney and member of McBrayer, PLLC. “We do have enough money to both save and continue a fiscally prudent manner of spending our money strategically to help Kentuckians while also preparing for the future.”
Public Education
HB 6, which passed the House on a 77-19 vote, raises per-pupil funding for public schools known as SEEK from the current $4,200 per student to $4,368 in the first year of the biennium and $4,455 in the second year. The plan also fully funds student transportation costs for school districts in the second year.
But Republican leaders again rejected Gov. Andy Beshear’s call for an 11 percent across-the-board pay increase for teachers and other school personnel. House Appropriations and Revenue Committee Chair Jason Petrie (R-Elkton) says the budget includes enough discretionary money for superintendents to decide what raises would be appropriate for their districts. He contends mandating a statewide pay increase is “a complicated affair” that could worsen funding disparities among districts, whether the money flows through the SEEK allocation or is a separate line item.
“If you try to put that through SEEK, you’re going to end up with no district getting what they thought they were going to get,” says Petrie. “When you take money outside of the SEEK formula, you’re going to exacerbate that disparity between affluent and less affluent (districts).”
Critics of the budget plan say it simply fails to do enough to raise educator salaries and prevent existing teacher shortages from getting worse.
“Since 2008, the average Kentucky teacher salary has fallen $9,736 once you count inflation,” says Bailey. “No wonder teachers are leaving their profession.”
A recent survey from Kentucky Association of School Administrators showed that 96 percent of respondents said districts would be unable to provide competitive salaries under the House plan. State Rep. Josie Raymond (D-Louisville) says starting salaries for teachers in neighboring states like Tennessee are now $50,000, far above what most Kentucky districts offer. She argues that increasing SEEK by only $255 per student, as House Republicans propose, is much too low.
“To even get us to those pre-recession levels of funding, you’d have to put $1,500 more per kid,” says Raymond.
Andrew McNeill, president of the Kentucky Forum for Rights, Economics and Education, says it’s a superintendent’s job to ask for more money even if they never say what it would cost to fully fund public education. He says it’s easy for Gov. Beshear to call for an 11 percent raise for school employees when he doesn’t have to figure out how to pay for it. McNeill contends the GOP approach of letting school districts decide their own raises is valid.
“There’s no opposition to increasing teacher salaries from this (Republican) majority,” says McNeill. “They’ve gone about it a different way.”
Pre-Kindergarten and Child Care
Critics also say the House plan appropriates insufficient moneys to the state’s child care centers and it fails to fund universal pre-kindergarten.
Day care centers in the commonwealth are set to lose some $330 million in federal funding when COVID pandemic relief ends this fall. To make up for that loss, House Republicans allocate $70 million to child care in their budget.
But without more financial backup, many centers say they might have to shutter. Some 1,700 centers have closed in the last decade alone, leaving many parts of the commonwealth without affordable, quality day care options.
“Without a significant state budget investment, the entire state is going to become a child care desert,” says Kentucky Youth Advocates Executive Director Terry Brooks.
McNeill contends that options for state funding of child care haven’t been properly vetted. He also argues that child care centers should operate like any other small business that has to manage its staff and pay its bills.
“In my 20 years, I cannot remember a group of small businesses or an industry lobbying the legislature for hundreds of millions of dollars to keep their business profitable,” says McNeill.
Raymond argues the state regularly subsidizes businesses and industries, like incentives provided to bourbon distillers or the new electric vehicle battery plants in central Kentucky. Bailey says child care providers, unlike other businesses, are caught between their operating costs and what working families can pay for daycare.
“The market is broken,” says Bailey. “People are not making enough in wages to afford child care, and workers at child care centers aren’t making enough to stay in the job.”
Bailey says the legislature should provide at least $300 million for child care so the industry can at least maintain the status quo while lawmakers look for longer-term solutions to the crisis.
The current lack of child care options is already a workforce issue, keeping many parents at home instead of on the job. Morgan says that makes child care a critical part of the state’s economy. She says the Senate version of the budget, which has not been released yet, may do more to fund child care, and separate legislation may address other issues plaguing the industry. Still, Morgan says that likely won’t include funding for universal pre-K, which Gov. Beshear has called for but Republican leaders have rejected.
“We will probably not reach the full level of measures that have been called for, partially because there’s not industry-wide support for all of those measures such as universal pre-K,” says Morgan.
Other Budget Measures
Given what’s not in HB 6, whether that’s pre-K funding, a cost-of-living adjustment for state retirees, or more infrastructure spending, critics say it makes no sense for Republican leaders to grow the Budget Reserve Trust Fund to more than twice what they say the state needs.
A separate spending measure, House Bill 1, does take about $1.8 billion from the so-called Rainy-Day Fund to pay down public pension debts and invest in drinking water and sewerage treatment projects.
McNeill says it’s important to hold money back in the event of an economic downturn or another round of natural disasters. He says the state should also hold an equivalent of 40 to 45 days of operational expenses in reserve.
“It’s also just a strong commitment to fiscal conservatism,” says McNeill. “They are choosing not to spend money for a very responsible reason.”
But that still leaves millions the state could invest in current needs that would position Kentucky for future growth, according to Bailey. He argues Republicans have crafted the budget in such a way as to meet mandated revenue goals that will allow another half-a-percent decrease in the state’s income tax.
“This budget has some gymnastics to try to hit the triggers for additional income tax cuts,” says Bailey. “If you look at the bottom line of what they are spending, it happens to be just about the amount less than the revenue to trigger an income tax cut in 2025.”
Republicans have a goal of eliminating the state income tax, but Bailey and Raymond warn that will have dire consequences for state coffers.
“That would do away with 40 percent of our General Fund,” says Raymond. “We have not heard from the Republican supermajority what the plan is to replace that.”
While the regular budget bills await Senate action, another measure could further complicate the state’s finances. House Bill 5, the Safer Kentucky Act, could substantially increase corrections costs in the commonwealth by extending prison sentences for some offenses and by creating new crimes. The legislation passed the House in late January without a required fiscal note saying how much it would cost to implement the various provisions.
Bailey calls HB 5 “a budget buster” that would force the state to spend more on incarceration while doing little to actually reduce crime or address its root causes. McNeill questions the effectiveness of the proposed policies and says lawmakers and taxpayers deserve to know what the measure would cost.
“This isn’t really an issue that’s going to impact the next two years,” says McNeill. “This is an issue that’s going to impact the next 20, and the trajectory of dollars that we’ve had to commit to corrections is unsustainable.”
