The following is an op-ed piece authored by Kentucky Chamber President and CEO Ashli Watts
It has been ten years since the Kentucky Chamber of Commerce released the original Leaky Bucket report that found three major leaks in state’s spending — corrections, Medicaid and public employee benefits — all of which were consuming tax dollars at a rate that was growing faster than the overall state budget. These leaks accounted for more than half of all growth in the budget from 2000 to 2010, and money was being allocated to these areas at a much higher rate than education — the key investment we should be making for our state’s future.
Since the original Leaky Bucket was published, several bipartisan policies have been 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.
Unfortunately, that is not the case. With the opioid epidemic plaguing our state and the resulting growth in the prison population, escalating costs associated with Medicaid, and continuing challenges with the pension systems, Kentucky is still struggling to fix the leaks.
The business community decided it was time to take another look at the bucket, following up our five-year checkup in 2014. The ten-year Leaky Bucket update examined spending trends from fiscal year 2016 to fiscal year 2020 and found:
- Total General Fund spending grew 14.5 percent.
- Corrections funding, which had grown only 4.2 percent in the 2014 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.
- Pension spending has doubled.
- 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.