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Best practices for a better Kentucky: Managing debt

Editor’s note: The Bluegrass Beacon is a weekly syndicated newspaper column posted on the Bluegrass Institute’s website after appearing in publications statewide.

While significant improvements have been made to Kentucky’s financial condition – including meaningful reforms to its public pension systems – much work remains ahead to create a commonwealth that’s as “red” in its economic policies as in its political representation.

To its credit, the politically super-red legislature made headway in that direction during this year’s General Assembly, including a demonstrable commitment toward a stable, stronger and secure economic future with a discussion regarding “how much to save” occurring with at least as much gusto as the usual conversations about “how much to spend.”

That discussion resulted in the strongest Budget Reserve Trust Fund in Kentucky’s history, occurring – remarkably – during a budget year featuring notable surpluses and a heaping pile of federal pandemic relief dollars.

These actions offer the promise of continuing momentum to implement a strong “rainy day” fund for future generations.

Having strong reserves in place to weather economic downturns and natural disasters is a sign of a competitive state.

So is getting control of – and properly managing – debt.

House Concurrent Resolution 81 (HCR 81), introduced by Owensboro Republican Rep. DJ Johnson during this year’s legislative session, establishes the Debt Affordability Task Force to study Kentucky’s non-pension debt obligations and report “best practices” and recommendations for managing the state’s debt going forward.

Skepticism that Frankfort could move beyond “study” to acting in a meaningful way to rein in its debt would be understandable.

But progress already made in resisting demands by the left to burn through the surplus dollars on new government spending shows restraint.

Putting those dollars into savings instead offers real hope of meaningful movement in addressing the commonwealth’s debt, which now stands at more than a whopping $11 billion.

Johnson’s resolution mentions the recognition of the progress made in Fitch Ratings, which, as Johnson’s resolution mentions, upgraded the state’s outlook from “negative” to “stable” in May 2021.

But Kentucky has ground to cover to get the kind of credit ratings that – just like an individual’s credit score – indicate a generally healthy financial situation and an ability to pay debts, which can result in reduced costs to taxpayers for capital projects.

Even with improvements in its recent fiscal condition, the resolution acknowledges that “Kentucky still carries one of the lowest credit ratings in the nation.”

HCR 81 also gives a nod toward the Federal Reserve Bank’s warning that “policymakers must carefully balance a state’s capital needs with efforts to keep debt levels affordable.”

Another distressing development is the increased spending to service the state’s debt – from $474 million in 2010 to $1.15 billion during the current fiscal year.

Just as individuals wanting to improve their credit-worthiness must do more than check their credit score occasionally, so a valuable service this task force would provide is to establish a clear approach to collecting, evaluating and consistently monitoring the state’s debt.

The more transparency that can be interjected into this effort – making sure, for instance, that taxpayers have full access to the information collected – the more support conscientious lawmakers will get from the citizenry for better reporting and managing of our state’s debt.

Johnson and the co-sponsors of HCR 81 deserve praise for resisting the “Not Invented Here” syndrome – which often hinders consideration of new ideas – by specifically stipulating that “identifying and recommending best practices for measuring and publicly reporting on Kentucky’s non-pension debt obligations, the Commonwealth’s capacity to repay existing debt, and decisions on issuing new debt” would be among the new task force’s duties.

Best practices for better debt management.

Best practices for a better deal for taxpayers.

Best practices for a better Kentucky.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free market think tank. Reach him at and @bipps on Twitter.

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