FRANKFORT, Ky. (KT) – One of the big three credit rating agencies has raised Kentucky’s financial outlook from “negative” to “stable.”
According to the report from Fitch Ratings, released on Tuesday, “The Outlook revision reflects Kentucky's solid economic recovery to date from the pandemic trough and the Commonwealth's ability to navigate the ongoing budgetary implications without materially weakening its fiscal resilience.”
In addition, Fitch Ratings, which grades their Issuer Default Rating on a best-to-worst scale of “AAA” to “D,” has affirmed Kentucky at AA-.
They say that rating “reflects the Commonwealth's solid ability to control revenues and expenditures to maintain fiscal balance, a declining reliance on one-time measures, and an elevated but still moderate long-term liability position. Recent spending restraint in most areas of the budget could prove difficult to maintain in future years, though the significant infusion of federal pandemic aid helps smooth the transition to more normal budget growth.”
Fitch Ratings also affirmed an “A+” rating on appropriation-backed debt that reflects debt service paid from lease payments, subject to legislative appropriation.
A higher rating reduces the costs of bonds and lowers the interest rate when the state issues them, just like an individual’s higher credit score makes it easier and cheaper to borrow money when buying a home or automobile.
“This improvement further indicates Kentucky is poised to sprint out of this pandemic and be a leader in the post-COVID economy,” said Gov. Andy Beshear. “Thanks to responsible fiscal management by my administration, even in the midst of a pandemic, our financial outlook is improving.”
He noted that estimates suggest, “We are going to end our fiscal year with a more than $586 million surplus in the general fund, and even a $12 million surplus in the road fund. What that will mean is that we will end up with over a billion dollars in our rainy-day fund.”
House Speaker David Osborne, R-Prospect, called the Fitch Ratings "positive news and a clear indicator that the conservative policies of the House Majority Caucus benefit our commonwealth.
"We didn’t get here by spending millions on services that are not effective or by using one-time monies to make long-term commitments. Instead, this upgrade to ‘stable’ is the direct result of the legislature’s fiscally disciplined and responsible approach to crafting a state budget and allocating federal COVID-relief funds. We listened to the people of Kentucky and adopted a spending plan that positions our state to navigate the current economic uncertainty."
Osborne said lawmakers placed a record amount of money into the budget reserve fund; invested in improving aging and inadequate infrastructure; and repaid a potentially crippling loan to unemployment insurance.
"Ultimately, the Fitch Ratings upgrade is proof that we are on the right path, but we must recognize that the economic uncertainty created by the pandemic and the state’s response to it is far from over,” he said.
Looking ahead, Fitch Ratings says factors that could, individually or collectively, lead to a positive rating action/upgrade for the state include:
--Rapid progress in addressing structural budget challenges and matching recurring revenues with recurring expenses, including maintaining commitment to key spending growth areas such as pensions.
--Sustained and material improvement in the state's economic trajectory and revenue growth prospects, supporting a more robust assessment of Kentucky's revenue framework.
What could, individually or collectively, lead to a negative rating action/downgrade:
--Inability to maintain structural spending commitments, most notably for pensions, while continuing to reduce reliance on non-recurring budget measures as the economic recovery takes hold and policy spending pressures assert themselves.