KY Policy Blog

Preliminary Forecast Predicts Weakest Revenue Growth Since Recovery Began

By Jason Bailey
November 20, 2013

Kentucky currently expects to craft its next two-year budget with the least amount of new General Fund revenue it has had since the recovery began. This bad news comes despite passing a revenue bill in the 2013 session intended to allow Kentucky to pay its full annual obligation to the pension system while protecting other parts of the budget.

The October estimates of the state’s Consensus Forecasting Group (CFG) project growth of $230 million in 2015 (the first year of the budget) and $221 million in 2016, increases of 2.4 read more

Revenue Forecast Shows Continued Deterioration of State Tax System

By Anna Baumann
August 16, 2013

The new long-term revenue forecast of the state’s Consensus Forecasting Group (CFG) suggests that Kentucky’s tax system will continue to deteriorate over the next four years, meaning tight funding for education, health care and other vital services.

In its first in a series of projections that will culminate in January with an official revenue estimate on which Kentucky’s 2014-16 budget will be based, the CFG chose a modest forecast for General Fund revenue growth. But as a share of the state’s economy, General Fund revenue is expected to decline.

GF as share of personal income-700x506

Source: read more

Graphic: New Revenue Wouldn’t Even Cover Basic Costs

By Ashley Spalding
August 8, 2013

The graphic below shows that the modest revenue growth recently predicted for the first year of the next budget ($259 million) is not enough to cover even Kentucky’s most basic costs. Among the state’s many needs are: making full payments toward the state pension system, paying for inflation in health care prices, and beginning to restore some of the $1.6 billion in cuts over the last seven years to education, health, human services and other critical areas.

Click here to read more about the revenue forecast.





  read more

Underfunding Also Led to Shortfall in Local Government Pensions

By Jason Bailey
June 14, 2013

The pension system for Kentucky local government employees has a shortfall even though local governments have been required to make their annual payments each year. Some are using this fact to suggest that defined benefit pensions themselves must be unsustainable and shift the focus away from inadequate government contributions. But this claim misses several important points.

First, the funding condition of the local government pension system is far better than the state employees’ system, for which the legislature hasn’t made full payments for the last 11 years. The main County read more

A Tax Shift Is Not Tax Reform

By Jason Bailey
June 7, 2013

A key question in Frankfort is whether state leaders will enact tax reform between now and the end of the 2014 legislative session.

But a challenge is the question posed by Senate budget chair Bob Leeper in a recent Louisville Courier-Journal article: “What do you mean by tax reform?”

Indeed. Tax reform is not an absolute good. Whether it helps or harms Kentucky depends on the purpose of the reform and the specifics of the proposal.

The recommendations of the governor’s tax reform commission, on which I served, were the read more

How the Medicaid Expansion Can Save Money in the State Budget

By Jason Bailey
May 10, 2013

Governor Beshear’s announcement that he’ll expand Medicaid in Kentucky included release of a report showing that expansion will result in a net savings of $802 million to the state budget over the next eight years. The report also demonstrates that not expanding Medicaid would cost the state $39 million over that same period.

But how can expanding health insurance to 308,000 Kentuckians save money in the budget, and how can not doing so increase costs? Here’s how.

Medicaid expansion will cover some indigent health costs currently paid for through the read more

Without More Revenue, Paying Pension Liabilities Will Continue to Be Challenge

By Jason Bailey
April 11, 2013

After the General Assembly passed final pension legislation, some proponents of Senate Bill 2 hailed it as “historic.” But the costs Kentucky faces to pay down its unfunded pension liability remain substantial—and the new revenues generated by the General Assembly to make those payments are meager.

After Senate Bill 2 is implemented, the employers that participate in the Kentucky Employees Retirement System (KERS) will need to come up with an estimated $590 million in pension payments in 2015 and $621 million in 2016, an increase of $253 million and $284 read more

State’s Mental Health System Has Experienced Severe Funding Shortfalls

By Jason Bailey
April 5, 2013

Discussion of the news that Seven Counties Services, a community mental health center in Louisville, plans to file for bankruptcy should include a look at the chronic lack of state funding for behavioral health over the last couple decades. The state’s community mental health centers have been hit by a combination of state General Fund budget cuts, frozen Medicaid reimbursements and the underfunding of pension liabilities.

In 1966, Kentucky passed legislation to implement President John F. Kennedy’s Community Mental Health Act. The state established local centers that provide treatment and read more

Not Paying Pension Bills Adds Up

By Jason Bailey
March 15, 2013

A major contributor to Kentucky’s pension funding problem is the legislature’s failure to make the full required contribution to the retirement system in recent years.

Shortfalls in payments started as early as 1993, but began in earnest in 2004. As the first figure below shows, the state has shortchanged the pension system by at least $100 million a year since 2007.

 Annual Shortfalls

Source: KCEP analysis of Kentucky Retirement Systems data. Analysis is for Kentucky Employees Retirement System Pension Fund only.

Added up, the shortfalls total $1.8 billion, as shown in the read more

Retirement System’s Investment Return Assumption is Reasonable

By Jason Bailey
March 8, 2013

One concern being raised in Frankfort about the existing defined benefit pension plan is that if the retirement system does not meet its expected rate of return of 7.75 percent per year, the cost to the state goes up. This concern is usually expressed by those who favor moving to a cash balance or defined contribution plan for new employees.

But a 7.75 percent return is in fact a reasonable assumption given historic performance and the realities of the market today, as explained by economist Dean Baker in recent testimony read more