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Auditor’s report 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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