Standard & Poor’s Ratings Services last week lowered Kentucky’s credit rating to A+ — the third lowest rating in the nation, behind only Illinois and New Jersey.
The reasoning for the downgrade, S&P explained, was the “chronic underfunding” of the state’s pension system by lawmakers.
From the Courier-Journal:
“The downgrade reflects our view of Kentucky’s substantially underfunded pension liabilities that are the result of chronic underfunding and that we view as placing long-term pressures on the state’s finances …” said S&P credit analyst John Sugden in a news release on Thursday. “Despite pension reform efforts that began in 2008, Kentucky lawmakers have yet to make meaningful progress in reducing its long-term pension liability, especially as it relates to Kentucky Teachers’ Retirement System.”
Kentucky Teachers’ Retirement System has about $14 billion in unfunded liabilities, and KTRS officials have said the system needs about $500 million more per year from the state to dig out of the hole. This summer, Beshear created a task force to study the problem and recommend solutions before he leaves office in December.
The Kentucky Retirement Systems for public employees has reported unfunded liabilities of about $17 billion. Lawmakers have passed reforms to shore up its problems, but it too will be seeking more state funding in the next state budget.
Moody’s Investors Service and Fitch Ratings have both assigned Kentucky a slightly higher rating than S&P.
Photo by: “Ky With HP Background” by Original uploader was HiB2Bornot2B at en.wikipedia – Transferred from en.wikipedia; transfer was stated to be made by User:Vini 175.. Licensed under CC BY-SA 2.5 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Ky_With_HP_Background.png#mediaviewer/File:Ky_With_HP_Background.png