Jim Waters: Best Practices for a Better Kentucky? Debt management

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Although significant improvements have been made to Kentucky’s fiscal situation — including significant reforms to its public pension systems — there is still a long way to go to create a Commonwealth that is as “red” in its economic policies as it is in its political representation. .

To its credit, the politically super-red Legislature made strides in that direction at this year’s General Assembly, including a demonstrable commitment to a stable, stronger, and secure economic future with a discussion of “how much to save.” happening with at least as much enthusiasm as the usual conversations about “how much to spend”.

This discussion resulted in the strongest fiscal reserve trust fund in Kentucky history, which occurred – remarkably – in a budget year with notable surpluses and a pile of federal dollars. pandemic relief.

These actions offer the promise of continued momentum to build a strong rainy day fund for future generations.

Jim Waters

Having strong reserves in place to weather economic downturns and natural disasters is a sign of a competitive state.
The same applies to the control and good management of debt.

Concurrent House 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 debt obligations. Kentucky’s non-retirement debt and report on “best practices” and recommendations for managing the state’s debt moving forward.

Skepticism that Frankfurt could go beyond “studying” to take meaningful action to get its debt under control would be understandable.

But the progress already made in resisting demands from the left to burn excess dollars on new government spending is showing restraint.

Putting those dollars in savings instead offers real hope for meaningful movement in dealing with Commonwealth debt, which now stands at more than $11 billion.

Another reason for optimism is recognition of the progress made by Fitch Ratings, which, as mentioned in Johnson’s resolution, changed the state’s outlook from “negative” to “stable” in May 2021.

But Kentucky has a long way to go to get the kind of credit scores that, like an individual’s credit score, indicate generally sound financial condition and an ability to repay debts, which can lead to reduced costs to taxpayers for capital projects.

Even with the recent improvement in its fiscal position, the resolution acknowledges that “Kentucky still has one of the lowest credit ratings in the nation.”

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

Another worrisome development is the increase in spending on government debt service – from $474 million in 2010 to $1.15 billion in the current fiscal year.

Just as people wishing to improve their creditworthiness need to do more than check their credit score from time to time, a valuable service that this task force would provide would be to establish a clear approach to consistently collect, assess and monitor debt. the state.

The more transparent this effort is – ensuring, for example, that taxpayers have full access to the information collected – the more conscientious legislators will gain support from citizens to better report and manage our state’s debt.

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

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. Read previous columns at www.bipps.org. He can be reached at [email protected] and @bipps on Twitter.

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