A nonprofit publication of the Kentucky Center for Public Service Journalism

Auditor’s reports says Kentucky’s debt amounts to more than $12,200 per person

By Tom Latek
Kentucky Today

A report from State Auditor Mike Harmon finds Kentucky’s total debt equates to more than $12,200 for every man, woman and child in the state.

The report, known as a data bulletin report, determined the debt, as of June 30, 2018, totals $54,615,409,616.  Of that, the vast majority, more than $43 billion, is unfunded public pension and insurance liabilities.  The rest is bonded indebtedness, according to the Auditor’s office.

“As has been widely known, Kentucky’s unfunded pension liability has grown for many years,” Harmon said.  “But what many people don’t know is that the commonwealth has additional debts of $11.2 billion in appropriation and non-appropriation supported bonds.  As a result, the commonwealth made more than $1.1 billion in principal and interest payments during Fiscal Year 2018 towards this $11.2 billion of bonded debt.”

The bonds are of two types: Appropriation Supported, which are currently issued by four major agencies and all eight state universities; and Non-Appropriation Supported, used by non-governmental agencies, such as the Kentucky Housing Corporation and the Kentucky Higher Education Student Loan Corporation.

While the General Assembly approves bonds, there is one agency that is exempt from approval.  The Kentucky Economic Development Finance Authority issues bonds to provide funding in support of private hospital and industry projects.  The private entity enters into a lease agreement with the Commonwealth that obligates the private entity to pay the debt service on the bonds, so no net liability is accrued.

In addition, there is no dollar limit to KEDFA’s outstanding Conduit Bonds.  These bonds are not generally a debt of the Commonwealth.  KEDFA’s board authorizes the issuance of bonds.  The proceeds from the bonds are then lent to other entities at terms that require the entity to cover the debt service on the bonds.

“As we saw in our recent examination of the KentuckyWired project, taxpayers ended up being on the hook for at least $1.5 billion over the next 30 years, with no specific legislative approval of the plan,” said Harmon. “If the KentuckyWired project fails, it jeopardizes the commonwealth’s entire credit rating, so I believe the General Assembly should establish additional limitations on agency bonding authority, particularly for KEDFA, and stronger oversight of all bonding.”

The data bulletin also points out that of seven states surrounding Kentucky, only Illinois has a worse rating for its General Obligation bonds.  Illinois, like Kentucky, has a public pension system that is significantly underfunded.  Indiana, Missouri, Tennessee and Virginia had the highest possible ratings from the three rating agencies for bonds.

The entire data bulletin, “An Examination of The Outstanding Debt and Debt Service of the Commonwealth,” is available for review online.

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  1. Bruce Sherron says:

    You could show this to every teacher and pension advocate in the state, and they’d probably compile some sort of argument to double the pension obligations and kick a bigger can down the road. What a joke, not even willing to negotiate half an inch on pensions = you get half of your pension when you retire down the road. its amazing how clueless and uneducated people are. kinda scary these people are teaching our kids and don’t understand math or economics 101. especially with federal support probably pulling back in the future due to there huge debt problem, they won’t be able to bail us out or help us when our pension obligations really hits the fan. i pray Bevin gets elected again and somehow fixes this. otherwise economic ruin is going to happen to this great state, less jobs, less tax dollars, less everything. depression will set in and drug use and crime will skyrocket and it all strains everything.

  2. Jack Brown says:

    The report does not mention the surrounding state of Ohio.
    How is it’s rating?

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