STATEWIDE POLICY POSITIONS HOME BUILDERS ASSOCIATION OF NORTHERN KENTUCKY
1) 2) 3) 4)
The Kentucky Economy………………………….... Government Accountability………………………… Land Ownership and Private Property Rights……… Environmental Regulations…………………………
Compiled by Home Builders Association of Northern Kentucky State & Local Government Committee
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The Kentucky Economy The market for homebuilding and remodeling depends on healthy economic components such as:
1. 2. 3. 4. 5.
Employment Quality educational opportunities. Population and household growth. Income growth. Government actions that affect the ability of people to afford new homes and remodeling.
This study of Kentucky’s economy compares the above market components to the nation and selected neighboring states.
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JOBS State Illinois Kentucky Tennessee Indiana US Median West Virginia Ohio Missouri Virginia
Unemployment Rate 8.8 % 8.4 % 8.2 % 8.0 % 7.9 % 7.5 %
The unemployment rates of all the states bordering Kentucky are shown in Table 1. As of October 2012 Kentucky’s unemployment rate is well above the national average. It has the second highest unemployment rate of all the adjoining states. This is only a snapshot of one point in time but it is indicative of the rate of unemployment Kentucky has experienced during the current and continuing recession Table 2 reveals that between Sept 2011 and Sept 2012 the Kentucky job situation improved a bit. Total nonfarm employment increased 2.65%, from 1,793,700 jobs to 1,840,700. That small increase is below the level it would take to start the market moving again. It is above the growth in the national workforce and our surrounding states during the same period.
6.9 % 6.9 % 5.7 %
Table 1 Bureau of Labor Statistics Oct 2012
State
Jobs Added or Lost
Kentucky Indiana Ohio US Jobs Virginia Illinois Tennessee Missouri West Virginia
+47,000 +65,000 +88,000 +155,641,000 +36,000 +52,500 +20,400 +11,400 -10,000
Table 2 Bureau Of Labor Statistics Sep 2012
% Change Sep 2011 Sep 2012 +2.65 +2.30 +1.74 +1.03 +0.98 +0.93 +0.77 +0.43 -1.32
Table 2 shows the relative job formation in adjoining states and the national growth rate. The time period used is September 2011 to September 2012. This time frame Includes 13 months with only one month in which there was a projected job number. In terms of percentage job growth, Kentucky, Ohio and Indiana beat the national average. Ohio and Indiana has increased their manufacturing jobs by 16,300 and 19,500 respectively in the measured time frame. The economies of Southeastern Ohio, Kentucky and West Virginia will continue to have difficulty because those areas rely heavily on the coal industry for jobs. The federal government has stated it will impose severe penalties and regulations on coal companies and coal fired generating plants. Kentucky ranks 10th out of the 50 states for its proportion of total revenue that comes from severance taxes. If federal mandates result in a loss of this revenue, the state will experience lower job formation. Such federal action will rob Kentucky of one of it’s best economic incentives for new business, cheap energy.
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JOBS (Continued) Employment Change by Job Sector Sep 2011-Sep 2012 Population
4.37 million Kentucky
11.4 million Ohio
6.52 million Indiana
Professional and Business Services
16,700
15,200
7,500
Trade, Transportation and Utilities
13,100
19,700
7,900
Leisure and Hospitality
9,900
10,500
9,500
Manufacturing
5,400
16,300
19,500
Education and Health Services
2,700
21,900
9,300
Government
800
-6,400
6,600
Financial Activities
700
3,200
-2,400
-2500
1,000
6,300
Job Sector
Construction
A comparison of Kentucky, Ohio and Indiana is worthwhile because these three states compose an economic area that both competes and cooperates. Northern Kentucky is a part of the Cincinnati and Southwest Ohio market place. What happens in one of those areas effects the others. Table 3 displays the jobs change by job sector for the 13 months from September 2011 to September 2012. Before comparing OH, KY and IN, the disparity in population needs to be addressed. Note that Kentucky’s population is about 40% of Ohio’s and 70% of Indiana’s. Table 4 presents a better comparison of growth because it measures the job changes per 100,000 people.
Table 3 Bureau Of Labor Statistics
Employment Change by Job Sector Sep 2011-Sep 2012 Per 1000,000 population Population 4.37 11.4 6.52 million million million Job Sector Kentucky Ohio Indiana Professional and Business Services
382
133
115
Trade, Transportation and Utilities
300
173
121
Leisure and Hospitality
227
92
146
Manufacturing
124
143
299
Education and Health Services
62
192
143
Government
18
-56
101
16 -57
28 9
-37 97
Financial Activities Construction
The chart points out the strengths and weaknesses of each state’s economy. Unfortunately, Kentucky has the worst construction environment of the three, losing 2500 construction jobs during the year while Indiana boomed in the construction and manufacturing sectors. Kentucky’s Professional and Business service sector grew the fastest, Trade Transportation and Utilities was second while Leisure and Hospitality came in third. . This shows the difference between Kentucky versus Ohio and Indiana. Ohio’s top three sectors are Education and Health Services, Trade Transportation and Utilities and Manufacturing. Indiana’s top three are Manufacturing, Leisure and Hospitality followed by Education and Health Services.
Table 4 Bureau Of Labor Statistics
Employment Summary According to the U.S. Department of Labor, the bottom of Kentucky’s employment happened in 2009. It mirrored the national drop in employment. When national employment started to improve in 2010, Kentucky’s job growth continued to mirror the national growth rate, with some monthly variations. Kentucky’s 2011-2012 job growth rate exceeded the national average. It is expected to continue the trend through 2015. It will be the first time Kentucky’s employment growth out performed the national average since the years between 1991 to 1995. Kentucky’s job growth rate should outperform Ohio’s and Indiana’s. 3
EDUCATION
In order for a state to have a good economy it needs to train its students in the skills needed to gain a job and advance. That is the job of the state’s education establishment. Many jobs require a high level of technical expertise. Students need to learn math, science, reading comprehension, technical vocational subjects, and advanced courses tailored to the individual student’s capabilities. The modern job market requires a high level of education in order to succeed. When companies are looking to relocate or start new businesses one of the main things they require is a pool of educated individuals from which to select their new employees. A state with an effective school system will attract those new businesses. The U.S. Department of Education does not rank the states on educational achievement. There are organizations that do rank the states in terms of results. Those organizations are usually ones that focus on education issues and are not dependent on the educational establishment. One of the best ranking systems is the annual American Legislative Exchange Council’s (ALEC) annual “Report Card on American Education”. The report is free to download at www.alec.org. The report has extensive data ranking all states on K-12 education. It ranks all states in educational progress, performance and reform. ALEC is a conservative organization. As such, it is interested in results not in effort. ALEC was established as a resource for state legislators and employees interested in change for the better within their state. It is a “think tank” of ideas that are purported to work. Their annual report uses information from the U.S. Department of Education’s “National Assessment of Educational Progress” report. ALEC combs through all the data in the National Assessment of Educational Progress - National Center for national assessment report and puts the information together in a simple, understandable format. That is the information that was used for this report section. This section will deal with only rankings of Kentucky, Ohio and Indiana. Education Performance Kentucky ALEC National Rank
Ohio
Indiana
37th
21th
17th
C
B
B
$10,076
$11,982
$10,040
33%*
37%
31%
Charter Schools Allowed
No
Yes
Yes
Delivering Well Prepared Teachers
D+
D
D
F
D
F
No None
Yes C
Yes C
ALEC State Grade Card Score Money Spent Per Student % 8th Graders Scoring Proficient
Exiting Ineffective Teachers (dismissal) Charter Schools Allowed Charter School Law Grade Home School Regulation Burden
Low
Private School Choice Vouchers
No
Moderate
Moderate
Yes
Yes
Table 5 ALEC and U.S. Department of Education * Highly disputed Kentucky score from the National Assessment of Educational Progress 8th grade exams. Kentucky did not follow the NAEP inclusion standards for testing.
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EDUCATION (Continued) Education Summary In 2012, the governor’s office issued a press release announcing that Kentucky had jumped 20 spots in national rankings from 34th to 14th nationally in just one year as measured by “Education Week”. The truth is Kentucky education is a mixed bag. There have been some improvements but they are minor. As Table 5 clearly shows, Kentucky is ranked lowest of the three states on education performance. According to ALEC, it has lowered the state academic standards. There is some evidence that achievement tests are not accurate. Despite what the education community claims, there is little evidence of improvement in academic standards and performance in Kentucky. Kentucky’s approach to educations leaves little room for competition. Home schooling is legal but charter schools are not. The state offers no vouchers for private schools. Education is in the hands of the teacher unions and bureaucrats. There is a reluctance for change. When asked why Kentucky has no charter schools, the former state Education Commissioner, lifelong teacher, state legislator and school administrator answered “Because charter schools are unfair to regular schools.” No mention was made about the children who would benefit from charter schools. His only concern was for the schools not the students. That statement about sums up the state of education in Kentucky. While Kentucky follows the status quo, Indiana and Ohio are reforming their systems. In addition to charter schools, they have implemented public school choice, new standards and accountability, magnet schools, open enrollment plans that allow low-income city kids to attend suburban public schools and participate in various curriculum-based experiments and private school vouchers. This puts Kentucky at a competitive disadvantage for attracting new businesses.
POPULATION AND HOUSEHOLDS Population
2011 Population Estimate
Kentucky
Ohio
Indiana
4.37 million
11.4 million
6.52 million
2010 Actual Population
4,339,367
11,536,504
6,483,802
2000 Actual Population
4,041,769
11,353,140
6,080,485
297,598
183,364
403,317
7.36
1.62
6.63
Change % Change
During the decade between 2000 and 2012, Kentucky had the highest growth rate while Indiana had the highest actual growth. The actual national growth rate for that same period was 9.7 percent. Kentucky, Ohio and Indiana had a lower population growth than the national average.
Table 6 U.S. Census
Households Kentucky 2011 Household Estimate
1,672,134
Ohio
Indiana
4,538,555
2,467,111
2010 Actual Households
1,719,965
4,603,435
2,502,154
2000 Actual Households
1,590,647
4,445,773
2,336,306
129,319
157,662
165,848
8.13
3.55
7.10
Change % Change Table 7 U.S. Census
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Throughout the last decade, Kentucky gained households at a higher rate than did Ohio and Indiana. While they added more households than Kentucky, their rate of growth was lower. The number and rate of household growth, by definition, mirrors the growth of housing. Those states that have a high rate of household growth have a faster rate of housing stock growth
HOUSEHOLD INCOME Median household income is an indicator of the ability to buy new homes. The higher the median household income the more residents can purchase a new home. Table 8 below traces the growth in household income for the previous decade in Kentucky, Ohio and Indiana. Between 2000 and 2010 the Kentucky median household income increased by a strong 19%. This was the strongest growth among the three states. Kentucky has the lowest median household income of the three states. Over the last decade the gap between Kentucky and the other states has narrowed but Indiana median household income is $5,297 more than Kentucky. Ohio median household income is $4,608 higher than Kentucky. This disparity among state incomes will hinder Kentucky home sales. The state needs to implement measures to raise median household income. This means bringing more high paid jobs to the state. In 2010 national household income was $50,046 which was $8,052 higher than national household income in 2000. This was an increase of 19.17 %. None of the subject states exceeded the national growth rate. Only Kentucky came close at 19%. The increase in Kentucky’s median income just barely kept pace with the national increase. The state is still behind the other two states in overall median income. Household Income Kentucky
Ohio
Indiana
2011 Median HH Income
$41,141
$45,749
$46,438
2010 Median HH Income
$40,062
$45,090
$44,613
2000 Median HH Income
$33,672
$40,956
$41,567
$6,390
$4,134
$3,046
19
10.1
7.33
Change % Change Table 8 U.S. Census
GOVERNMENT ACTIONS Kentucky’s elected officials need to realize they are competing with surrounding states. They need to look to the other 50 states for ways to increase prosperity in the Commonwealth. One glaring issue is the “Right to Work” movement. The Bureau of Labor Statistics (BLS) has two monthly surveys that measure employment levels and trends: the Current Population Survey (CPS), also known as the household survey, and the Current Employment Statistics (CES) survey, also known as the payroll or establishment survey. The household survey tells us the right to work states gained 3.6 million jobs over the last decade while the union states lost 900,000 jobs, The payroll survey states that right to work states gained 1.6 million jobs but the union states lost 2 million jobs over the last decade. The conclusion of both surveys is union states are losing jobs and right to work states are gaining jobs. Loss of manufacturing jobs is one of the reasons Michigan and Indiana recently became right to work states. Much of the jobs growth has been in the southern states all of which are right to work states with the exception of Kentucky. See map below.
Right to Work State Union State
Another issue that needs to be addressed is the “Prevailing Wage” law. State and local governments could save the Kentucky taxpayers tens of millions of dollars each year. Public buildings and structures could be erected at a fraction of the cost while providing employment for local businesses in the construction of these facilities. This would open up the bidding process and reduce costs. 6
GOVERNMENT ACTIONS (Continued) Education in Kentucky needs serious reform. Other states are implementing reforms that are lowering the cost of education and improving the results. States are now grading schools on the A thru F report card system. Some are hiring private companies for schools with a five-year or longer record of academic failures. Charter schools are improving academic performance for students. Some allow parents to create charter schools for poorly performing district schools. Some reformers are implementing digital learning and eliminating the cap on the number of students that can attend. School vouchers would empower poor families to send their kids to private schools if their students are trapped in bad public schools. All of this creates competition between private and public schools which raises academic achievement in all schools. These are just some of the ways states are fighting the educational bureaucracies across the nation. Kentucky has implemented none of these reforms. Kentucky’s tax system is very inefficient and counter productive. It is modeled after the federal tax system. Many states have simplified their tax system so taxes can be paid on a one or two page return. Kentucky has a very regressive tax system. Each year a number of bills are introduced and passed in the legislature. Many of those bills have adverse effects on business and job creation. The legislature should devise a procedure to consider the costs and benefits to business for any new legislation that has some effect on business and jobs.
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GOVERNMENT ACCOUNTABILITY Each and every government agency should be accountable to the public which it was established to serve. This includes not wasting tax funds paid by the citizens, and not introducing unreasonable and overbearing regulations. It includes all of the special districts which have been established. Some of the independent taxing authorities need to be eliminated or reformed. According to the State Auditor’s office there are over 1,200 special taxing districts in Kentucky. They account for $2.6 billion in taxes annually. This is a layer of government taxation that has very little taxpayer control. The controlling boards are not elected by the people to serve on those boards. They have the power to raise taxes without the vote of the people as long as the tax increase does not exceed 4% per year. If a district imposes a 4% tax per year that represents about a 50% tax hike over 10 years. A list of these authorities follows. Agricultural Extension
Drainage and Levee
Mental Health
Air Board
Fire Protection
Public Health
Air Pollution Control
Flood Control
Rescue Squad
Ambulance
Hospital
River Port Authority
Area Development
Housing Authority
Road District
Area Planning Commission
Industrial Development Authority Sanitation District
Community Action Corporation
Library
Sewer District
Community Improvement
Mass Transit Authority
Soil and Water Conservation
Sometimes the taxes are higher than the government agency which established the district. However the voting process or appointment process for board members to these districts is political, secretive, confusing, and sometimes all of the above. If any special district is created, have the board or trustee members be selected by voters rather than the current process. The budgets for each of these special districts should be made readily available to the public including on their web site, and should be subject to regular audit by the City, County, or State. All taxes and special fees enacted by these special districts should be included in the computation for the 4% annual cap. Laws should be passed which restrict every government agency and district from encumbering taxpayers and their descendants with unreasonable taxes, unaffordable projects, outrageous pension and retirement benefits, etc. Governments need to be restructured and reorganized to reduce inefficiencies and waste. The number of government employees needs to be reduced since there is a tremendous amount of waste as it now exists. There is no reason for fire stations, libraries, courthouses, city buildings, and other government buildings from being overbuilt for the purposes intended. There are hundreds of examples of this in Northern Kentucky and thousands in the State. The legislature should consider introducing legislation that mirrors the Wastewater legislation championed by Senator Damon Thayer. This legislation should create a system that any increases in taxes by special taxing districts should require a vote of the County Fiscal Courts that are in the districts’ service area.
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LAND OWNERSHIP AND PRIVATE PROPERTY RIGHTS Land is a finite resource and its availability, unencumbered use and re-use of, and ability to transfer title to, is the necessary “a priori” resource for housing and the built environment. Any legislation, regulation, restriction, tax, fee or lien placed upon real property should be approached with the utmost caution. These “shadows” could ultimately weaken the private property rights that we all aspire to hold and enjoy. Since our country’s founding this unique experiment of capitalism and private property rights has produced, privacy, sanctuary, pride, care, husbandry and a source of wealth and security for millions of our citizens. These rights are the bedrock upon which the foundation of our government and way of life are anchored. Conservation easements, which are created to hold land in perpetuity from one generation to the next and beyond, can place unnecessary burdens and denial of ownership and loss of tax revenue on future generations. In light of national, state and local set asides, thoughtful consideration as to the right to define forever for land that is available for private ownership should involve a long national and statewide debate. Property owners must be justly compensated for reductions in value of their property caused by actions of any level of government, taxing district, or quasi-governmental agencies. Citizens should have faster, easier and lower cost access to federal court review on takings issues. Local and state government planning efforts should take into consideration and publish that determination, on any adverse impact that proposed land and transportation planning decisions may have on private property ownership. Examples: The new Mt. Zion Road interchange design will deny the opportunity for adjacent landowners’ potential use of this land for commercial enterprises. The North Bend Road redesign has caused undo hardship on property owners to the west of North Bend Road as access to potential and existing commercial operations has been reduced as a result of the road design. The exit design for the potential new bridge to span the Ohio River may cause an economic difficulty for the city of Covington. Solution: Any planning effort on a state funded basis or managed by the state should include a feasibility study as well as an economic impact model. These reports should be backed by sound science as well as rationalized by harsh economic criticism.
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ENVIRONMENTAL REGULATIONS Environmental agencies, their regulations and their scope of authority have increased at an accelerated pace over the last decade. Although several Supreme Court cases have ruled against the Environmental Protection Agency and the Army Corps of Engineers, these agencies have tried new procedures that circumvent their traditional rulemaking process. They have begun using “guidance documents” that they declare carry the same weight as a regulation born of the formal rulemaking process. This is a new development and is just now beginning to be tested in the courts. Additionally, the state offices of these agencies have different and at times disparate interpretations of regulations from state to state. These agencies also include the Fish and Wildlife Service. Many of the mandates of these agencies are unattainable and entirely unfunded and fall upon the responsibility of local municipalities to fund and create. This puts an undue burden on our local economy and stifles growth in our region. Agencies have recently become involved in inter-agency partnerships which they believe have afforded themselves regulation of areas they previously had not held. Over the last three years the EPA, HUD and DOT have partnered in a “Sustainable Communities Partnership”. Their work can be seen at www.sustainablecommunities.gov. In an interview in the recent past Ray LaHood, DOT Secretary was asked a question on what he believed this all meant. He said the following: “a community where if people don’t want an automobile, they don’t have to have one. A community where you can walk to work, your doctor’s appointment, pharmacy or grocery store. Or you could take light rail, a bus or ride a bike.” The important question to be asked is if the EPA, DOT and HUD decide that vehicle miles traveled is to be taxed, suburban expansion is causing global warming, and that Americans should walk and bicycle through life then are we loosing our traditional American way of life? Are we loosing our growth? Are we loosing the exact system that created the greatest economic expansion that this world has ever seen? The offshoots of this expansion resulted in medical miracles come to life, technology advancement and a lifestyle and lifespan that Americans have been able to point to as the greatest citizenry and country this world has known. During the period that this partnership was drafting their plans they considered, Americans moving from rural communities to rural cities, suburban residents moving to urban centers, and the accusation that “sprawl” can mean whatever they wish it to mean. Moreover, there are city and county governments in our state and surrounding states, including Frankfort, Berea, Lexington and Cincinnati, who are members of Local Governments for Sustainability (ICLEI). Their website can be found at www.iclei.org. Legislators from Kentucky need to realize the cost and largely unintended consequences that is associated with the desired results of these initiatives. Walking paths alone cost $1MM per mile to create and then there will be maintenance costs associate with the upkeep of these systems. We agree that citizens should be given a choice as to how they want to live. We do not see the sustainability initiative as the answer to choice but the market as the answer. Builders and developers will deliver to market that which their customers desire. The costs associated with storm-water water quality systems has become a hindrance to growth. This has caused lot yield to decrease for residential projects and useable land area per parcel to decrease for commercial and industrial uses. Additionally the approval, engineering, installation and maintenance for these systems have added additional costs to all development and growth. This has slowed our economy. All of these systems add time to the process which additionally drives up costs. Ultimately these costs are delivered to the customer; making all housing, and commercial and industrial operations far more expensive than they once were. Couple these regulations with the added regulations mandated upon water and sewer districts and the citizen continues to suffer. While state legislators cannot completely change federal agencies they should exercise their influence upon state offices of these agencies to improve timeliness, responsiveness and regularly definable and universal interpretations from state to state. This would lower the cost of living and operating any business in the Commonwealth. At the same time our statewide elected leaders should work to minimize the impacts upon our coal and construction industries. We should work to defund sustainable initiatives paid for by state taxpayers and focus on getting the market back on track so that people are free to decide how they want to live.
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