Kentucky Has Weathered COVID-19 Pretty Well So Far. We May Not Do As Well With The Likely COVID-19 Recession

This is the third edition of what will be an occasional newsletter focusing on government and elections but really power in Louisville and Kentucky, helping explore who has it, who is gaining it, who is losing it and why. (For example, Jefferson County Public Schools and Humana are very powerful forces in Louisville, even though they are not “political” institutions.) You can subscribe here. There are some light prediction-ish things on various national politics questions at the bottom of this edition. 

The Coming COVID Recession

Kentucky unfortunately isn’t usually known for outperforming other states. (We are 44th in median annual household income, for example.) But in terms of managing the COVID outbreak, Kentucky has fewer deaths per capita than 30 other states, according to data compiled by the Washington Post. (Per capita means adjusting for population. So more people have died from COVID-19 in Texas compared to Kentucky in part because Texas has a significantly larger population.) I do not mean to diminish at all the deaths of 409 people in the state from the coronavirus. The death toll in Kentucky, even if it’s smaller than many other states, is a tragedy. But it’s likely that both Kentucky got lucky in some ways and that Gov. Andy Beshear’s aggressive action to try to limit the virus’s spread kept down the state’s death toll. 

But the likely post-COVID recession is a huge looming problem, and one Kentucky does not look like it is weathering well so far. Kentucky’s unemployment rate for the month of April was 15.4 percent, higher than all but 10 states, according to the U.S. Department of Labor. About 54,000 Kentuckians first filed for unemployment benefits last week, on top of more than 245,000 people who had already successfully filed for unemployment. And there is a backlog, with potentially several hundred thousand people who are out of work but whose claims have not yet made it through the system.  

Beshear’s influence will be more limited here---it’s likely that restaurants, hotels and other businesses will have significantly fewer customers for a while because people are worried about catching the virus, and that will make it hard for employers to hire back laid off workers. 

To get a sense of the potential recession, how Kentucky could recover best and why it might not, I reached out to Jason Bailey, who runs a Berea-based organization called the Kentucky Center for Economic Policy. (He’s a sharp guy, you should follow him on Twitter.) Here’s what he told me: 

1. Kentucky is poorly-positioned to deal with this recession because the state didn’t totally recover from the one from 2007-09. 

Bailey: The Great Recession  [the 2007-2009 recession] meant over a decade of budget cuts in Kentucky. We had 19 rounds of cuts right up until last year totaling over $2 billion--in a state with a [General Fund] budget of around $11 billion. Unlike many states, Kentucky hadn't yet begun to turn the corner on that recession when the COVID-19 crisis hit. 

It wasn't just dollars that were cut. We saw a real reduction in critical services. K-12 class sizes got larger. Many districts cut art and music programs, afterschool services and technical education offerings. University and community college tuition soared as we cut those institutions' state funding by about one third-- leading to higher tuition and more student loan debt. 

We weakened frontline services like public health with severely reduced staffing--hampering our ability to respond to crises like the opioid epidemic and the Hepatitis A outbreak. And our social workers were forced to handle caseloads far above what is considered best practice, even while we have the highest rate of child abuse and neglect in the country. 

We had a recovery over that decade that was slow and gradually brought the unemployment rate down. But actual employment still wasn't back to where it was pre-Great Recession when you include people who weren't counted in the unemployment rate.

2. We aren’t likely to get back to the pre-COVID unemployment rate (5 percent) in Kentucky for a while.  

Bailey: Even if we begin to recover and avoid a second spike in cases, the unemployment rate will not return to pre-COVID levels any time soon. We know that there will be economic drags from this crisis--businesses that are unable to reopen, debt that has been deferred, a likely continued lack of consumer confidence and reduced spending due to a loss of wealth. 

The Congressional Budget Office is predicting an unemployment rate at the end of 2021 that is nearly as high as it was in the worst years of the Great Recession in Kentucky. 

3. The COVID-related shortfalls in the budgets for cities and the state create two major problems. First, a huge number of Kentuckians, 277,000, about 14 percent of the state’s workforce, is in taxpayer-funded jobs, from teachers to police officers to social workers. Many of them could be laid off if cities, towns and the state continue to have shortfalls. Secondly, local and state governments spend a lot of money that helps boost the economy, so if they cut costs, that will hurt other businesses too. 

Bailey: State and local spending is a big part of our economy. That includes direct employment for teachers, firefighters, social workers and more, but also indirect employment such as in hospitals and doctors' offices where Medicaid is a major creator of jobs for nurses and other healthcare providers. 

There are also multiplier effects from state and local spending--when those teachers and nurses spend money at grocery stores and hardware stores, or tithe to their local churches. So as state and local governments cut their budgets--which they must without aid in this crisis because they have balanced budget requirements--we'll see those people begin losing their jobs and it has a ripple effect through the entire economy. 

When we already have a situation where likely more than 30% of Kentuckians are unemployed [including both those who have filed unemployment claims and those who are out of work but not seeking jobs right now], we don't want to make that number go much higher through a completely avoidable second crisis spurred by state and local budget cuts. 

4. Kentucky, like other states, really needs the federal government (which is not required to balance its budget) to offer some financial help. 

Bailey: The federal government should be providing much more in relief. That should include direct aid to state and local governments to protect jobs and services, in addition to other necessary forms of aid including increased SNAP benefits, continued expanded unemployment benefits and much more. It should be large enough to address the size of the economic challenge we face--$1 trillion alone for state and local governments nationally.  And the aid should be designed to automatically continue until the economy fully recovers. If Congress doesn't provide that aid, the recession will become much more painful and the pain will last much longer. That helps no one, and is completely avoidable. 

States and localities also have a responsibility to take a balanced approach to the crisis. They should be utilizing their rainy day funds--it's not just raining, it's flooding--and should be raising revenue by asking more in taxes from those most able to pay. That won't solve the problem alone given how large it is--more federal aid is absolutely necessary--but is a part of the solution. 

FEEL FREE TO STOP READING HERE! We journalists are often told, “this article was good, but it was too long.” I often think (but don’t say), “you can always stop reading, but someone else might enjoy the rest.” But I think most journalism fails to give readers clear exit routes. So in this newsletter, I will try to lead with a section on whatever I think is the most distinct thing I have to say that day and then shift to other topics where I think I have useful but perhaps less distinct things to say. You can consider yourself having read this newsletter (check!) after the top part, but I think what comes below is worth checking out too. 

Reminders: 1. If you have been subscribed to this but don’t think you want to read it in the future, feel free to unsubscribe. 2. If you have tips or suggestions for future stories, please email me at perrylbacon@gmail.com 3. Feel free to share this with friends or post online. 4. I am doing this without an editor, so please email me if you see typos and/or errors so I can correct them. 

Back to Bailey. 

5. A lot of people are arguing that COVID-19 created huge problems for America, but really exposed what was already broken. So it might be time to address both the immediate problems but also the underlying ones. So I asked Bailey about his ultimate vision for Kentucky’s economy. 

Bailey: Kentucky's current challenges are the result of its history--that of an extractive economy based on cheap land and cheap labor where the wealth has largely left the state. To begin changing that, we have to do what prosperous places have done and invest in the foundation of our prosperity first. That means education, health and the material well-being of all of our people first and foremost, especially children. It means creating a modern infrastructure from transportation to internet, and cleaning up the land, air and water. 

And it means generating resources for those investments by challenging the enormous inequalities of wealth and income that plague our state and nation, and the profitable corporations that do well because of Kentuckians but don't adequately give back. It's that kind of model of shared prosperity that will create a context where businesses grow, innovation happens and communities thrive.

The Answers to Your Favorite Questions, at least according to one political expert/journalist/pundit (me.) 

1. I would bet on Biden over Trump if I had to bet, but I wouldn’t bet at all. It’s very uncertain. The national polls don’t totally reflect our elections, which are state-by-state. Trump is likely stronger at the state level than nationally, because a lot of the key swing states like Wisconsin have higher percentages of white Americans than the country overall. 

2. I would bet on Harris if I had to bet. (She is black and Asian, in a party that prizes racial diversity. But I think a bigger advantage for her is that she’s not considered too left by some in the party, like Warren, or too far to the right, like Klobuchar.) But again, I wouldn’t do this bet either. I think Klobuchar and Warren are very much in the running. I do think it will be one of those three, and if I were a betting person, would take those three over the rest of the field. 

3. If I were a betting person, I would bet McGrath over Booker and Broihier. But the two underdogs (Booker and Broihier) seem to be picking up some support. It would still be a huge upset if either of them won. 

4. It would be one of the bigger upsets in modern political history if McGrath (or whomever is the Democratic nominee) defeated McConnell. The safe bet is McConnell--and I tend to think it’s fairly safe. 

But who really knows?