Tiffany Dunn, who teaches English at Lassiter Middle School in Louisville, began to weep Tuesday at the state Capitol. She was speaking at a rally of educators scared of what the 2018 General Assembly will do to Kentucky’s schools when it axes up to $1 billion a year from the state’s $11 billion General Fund.
A decade of state budget cuts since the Great Recession of 2008 — roughly $2 billion, cumulatively — already has drained funds available for textbooks, teacher training and services for children with learning difficulties. The funding gap between the richest and poorest school districts is close to what it was in 1990 when the Kentucky Education Reform Act required the state to send additional money to communities unable to raise enough from their meager property tax bases. In 2016, nearly $1,400 more on average was spent to educate each child in the most affluent districts.
Now the legislature is preparing to write a two-year budget that Republican Gov. Matt Bevin warned this week will be “brutal” because of a massive increase in costs for public pensions, as well as Medicaid and prisons. Lawmakers say they have no political appetite in this election year for tax increases that would raise more revenue. So everyone is bracing for the worst.
“They are — they are systemically ruining our schools on purpose,” Dunn said at the Capitol rally, wiping tears from her eyes.
In an interview a few minutes later, Dunn said educators’ biggest fear is that the legislature will — for the first time — cut the basic K-12 funding formula for school districts known as SEEK (for Support Education Excellence in Kentucky). SEEK has been stagnant for a decade, which is effectively a cut, given the pace of inflation, but lawmakers previously promised to leave SEEK alone while reducing other school funding. However, those promises have stopped.
“If they go after SEEK, I hope we see a lawsuit, frankly, because that’s what levels the playing field for school districts that don’t bring in the kind of property taxes that other, better-off districts do,” Dunn said. “For SEEK to even be on the table shows there isn’t any concern about kids here. It shows that there is an agenda, unfortunately, where the politicians in charge seem to want our schools to fail.”
Bevin is scheduled to release his budget proposal Jan. 16, although lawmakers are not legally bound to follow it as they draw up their own plans. On Friday, though, Senate budget Chairman Chris McDaniel said Kentuckians are right to worry about massive spending cuts. McDaniel said he could not promise that SEEK funding will be protected.
“I would like to tell you that it will be, but I can’t in all honesty say that,” said McDaniel, R-Taylor Mill. “It is such a large part of our remaining budget. K-12 schools are 45 percent of the General Fund. And we are looking at a hole in our budget that is $1 billion. So how you close that hole without touching SEEK, I really can’t tell you yet.”
The same lament is heard throughout state government. Agencies that have lost up to half of their funding in recent years are getting ready for layoffs. From state universities to state police, social workers to public health officials, everyone asking the legislature for money this year understands that they’re probably going to lose money instead — and a lot of it.
“I have not personally witnessed a $1 billion budget shortfall in Kentucky before. I don’t think anyone has,” said Jason Bailey, executive director of the Kentucky Center for Economic Policy in Berea.
“Even in the midst of the Great Recession, we had the federal Recovery Act money coming in from Washington to soften the blow,” Bailey said. “So the pain that we’re about to experience is something that’s truly unprecedented.”
In debt from the start
The state budget was in the red even before lawmakers returned to the Capitol this month, for several reasons.
One, the state faces a projected $41 billion pension debt between the Kentucky Retirement Systems and the Kentucky Teachers’ Retirement System. Bevin is negotiating privately with Republican legislative leaders on possible changes to the pension systems after Bevin’s first “pension reform” plan was rejected last fall. In the meantime, lawmakers have been warned that shoring up pensions will require at least an additional $700 million in each year of the next budget.
In addition to exploding pension costs, McDaniel said, the state continues to struggle with a rising share of expenses from its $10 billion Medicaid program, which now provides health care for more than 1.4 million low-income Kentuckians, or roughly one-third of the state’s population. The cost of prisons — where the inmate population surged above 24,600 for the first time last fall — also is steadily expanding, although it’s far smaller than pensions and Medicaid.
“There are two areas that are starving out the rest of the budget, and that’s pensions and Medicaid,” the senator said. “Combined, they were roughly 19 percent of the budget a decade ago, and now they’re roughly 32 percent and getting bigger all the time. So if you want to know where the money is going, that’s where the money is going.”
Two, lawmakers used $433 million in “one-time funds” to balance the Fiscal Year 2018 budget that ends June 30. This was money they transferred from various sources, including the Public Employee Health Insurance Trust Fund and the Petroleum Storage Tank Environmental Assurance Fund. That bit of budgetary duct tape worked well enough in 2016. But it also means that as they sit down to write the Fiscal Year 2019 budget, lawmakers start $433 million in the hole.
Three, Kentucky’s General Fund is growing slower than it should. The economists of the Consensus Forecasting Group, who provide revenue estimates for the state budget, last month predicted a modest 2.7 percent revenue growth for Fiscal Year 2019, bringing in $11 billion, and 2.6 percent growth in Fiscal Year 2020, bringing in $11.2 billion. That would neither keep pace with national economic growth nor the increased demand for services by Kentuckians.
Janet Harrah, a member of the Consensus Forecasting Group, said the ongoing collapse of Kentucky’s coal industry and slow population growth both have eroded tax collection for the General Fund. States with booming populations have more people with incomes and purchases that can be taxed. That doesn’t describe Kentucky, where the population has grown by 2 percent since 2010. In Texas for that same period, the population grew by 12 percent.
“We’re forecasting some revenue growth, but it’s the rate of growth that we’re concerned about,” said Harrah, who is senior director at Northern Kentucky University’s Center for Economic Analysis and Development.
No money, no progress
Although lawmakers agree there isn’t enough money to pay for everything Kentuckians want from Frankfort, they also don’t plan to raise taxes in any dramatic fashion this year. Even a hike in the cigarette tax from 60 cents a pack to $1.60, which a majority of Kentuckians supported in a statewide poll released last week by an anti-smoking group, has stalled in the legislature for a decade.
In November, all 100 House seats and half of the 38 Senate seats are up for grabs. Reshaping public pensions, particularly for school teachers, who are politically powerful in every county, will be more than enough controversy for many incumbents seeking re-election.
“As far as the 2018 session goes, it remains to be seen whether we’ll get any kind of comprehensive tax reform,” said Dave Adkisson, president and CEO of the Kentucky Chamber of Commerce. “I think what we’re actually more likely to see is an intense scramble to make ends meet. We’re going to see members of both parties looking everywhere they can for some new revenue that can’t technically be called a tax increase, and they’ll be trying to piece as many of those together as they can.”
No additional revenue means chronic problems will go unaddressed for another two years. For example, in December, a panel of lawmakers recommended changes to Kentucky’s adoption and foster care system, which they said was too full and too slow to adequately serve the more than 11,000 children living in foster care in 2016. But it would cost the state $28 million to hire enough social workers to reduce the staggering caseloads that allow abused and neglected children to slip through the cracks, sometimes fatally. And lawmakers on the panel freely conceded that that money probably won’t be in the next budget.
“Unless and until we embrace the idea that we need more revenue sources, the best we can do is to nibble at the edges of improvement,” said Terry Brooks, executive director of Kentucky Youth Advocates.
“The odd thing is, nobody would suggest that we could solve the state’s pension crisis without additional money,” Brooks said. “Of course we need to find more money for pensions, and we will. But the same is true of the child welfare situation in Kentucky, which is also a crisis. We can’t solve that without more money, either.”
All of this puzzles Tiffany Dunn, the Louisville school teacher at the Capitol.
“I’m a Christian conservative, as many of these legislators say they are, and what I don’t understand is — the public schools serve the poor. That’s what they do. They serve everyone who comes in the door, and that includes a lot of poor children, and that’s what a lot of our other state services do, too,” Dunn said.
“So from a Christian perspective, why would you not want us to have the funds we need to serve these children?” she asked “That blows my mind. To me it really is as simple as that. I just can’t support people who attack an institution that serves the poor.”