In just the past month, Kentucky has announced the re-opening of a corrections facility in Eastern Kentucky due to massive overcrowding, a federal judge is deciding whether the commonwealth can move forward with its Medicaid waiver to attempt to contain the increasing costs while incentivizing people to work, and discussions are still ongoing about potential changes to the teachers’ retirement system. Unfortunately, these are not new issues for Kentucky.
It has been 10 years since the Kentucky Chamber of Commerce released the original “Leaky Bucket” report that found if the state budget was a “bucket” there were three major “leaks” – corrections, Medicaid and public employee benefits – all of which were spending categories growing at a rate faster than the overall state budget. These leaks accounted for more than half of all growth in the budget from 2000 to 2010, and Kentucky funding these areas grew at a much higher rate than education, which is the key investment in Kentucky’s future.
Since the original “Leaky Bucket” was published, there have been bipartisan policies enacted in an effort to curb these disturbing trends: comprehensive criminal justice reform in 2011, changes to the public employee pension benefit structure in 2013, and Medicaid moving to a managed care system. For a while, it looked like these policies might slow, if not stop, some of the leaking.
However, with the opioid epidemic plaguing our state, escalating costs associated with Medicaid expansion, and no changes made to the teachers’ retirement system, the state continues to struggle to patch the holes.
The business community decided it was time for a checkup on the “bucket,” which we first did five years after the original report. The Kentucky Chamber will publish the 10-year “Leaky Bucket” update in November, which examines the trends since 2014 including:
• Total General Fund spending grew 14.5 percent.
• Corrections funding, which had grown only 4.2 percent in the 2015 update, increased by 15.9 percent – faster than the overall budget.
• Medicaid spending grew 25.6 percent compared to 16.5 percent from FY 2012 to 2016.
• Public employee health insurance spending grew only 5.5 percent, an improvement over that documented in the 2014 update.
• Basic funding for K-12 education has increased only 1.2 percent since FY 2016, but spending on other items (such as textbooks, preschool, health insurance for active teachers and pension contributions) has grown 30.8 percent in the period; this is primarily due to increased contributions to the Kentucky Teachers’ Retirement System.
• Funding for postsecondary education decreased by 6 percent, continuing the trend identified in earlier “Leaky Bucket” reports.
These trends show an unfortunate reversal of the progress documented just five years ago. New data reveals spending on Medicaid, corrections and pensions continues to outpace overall state spending. Although Kentucky has experienced revenue growth due to record business investment, low unemployment and tax reform, this growth has not eliminated the need for program funding cuts.
If Kentucky is to overcome its historically high levels of poverty, poor health status and low levels of education attainment to develop a 21st-century workforce and remain competitive, greater investments will be required in programs to ensure the prosperity of the commonwealth and its people. We cannot strive just to keep pace with our competitors. We must accelerate our efforts and provide the resources to fuel them.
The commonwealth cannot reform or cut its way out of current funding challenges without falling further behind in areas critical to our future. We ask the governor and legislature to “look beyond the bucket” to generate additional revenue. Kentucky needs continued pro-growth tax reform that improves the commonwealth’s competitiveness while producing net new revenue to support education and develop a modern workforce. ■
Ashli Watts is president and CEO of the Kentucky Chamber of Commerce.