BRADENTON, Fla. – Kentucky Gov. Matt Bevin approved the state budget for the next two fiscal years, which cuts agency and education funding to address a portion of the state’s massively underfunded pensions.
“All of the goals that we outlined in January to repair our financial foundation have been achieved,” Bevin said Wednesday as he signed the biennial budget.
The two-year spending plan “also keeps promises made to teachers and other retired state workers,” he said, referring to measures designed to close the gap on $35 billion in unfunded pension liabilities.
The budget totals $36.65 billion for fiscal 2017 and $32.2 billion for 2018.
It imposes cuts of 9% to many state agencies over the biennium and 4.5% cuts to higher education. K-12 schools will see flat funding over the next two years. No taxes were increased.
The savings from trimming state services along with one-time money – including reserves - are being used to contribute $1.16 billion above base funding over the two years directly to the state’s pension systems.
Another $125 million seeds a newly created “permanent” fund for pension liabilities.
In addition to direct state appropriations and investment earnings, the permanent pension fund is also eligible to receive proceeds from litigation settlements and the sale of state property.
Bevin also vetoed some funding measures in the budget along with accompanying bills. His office did not provide specific details on the total amount of cuts or where the funds would be allocated.
In March, Bevin unilaterally ordered university and community colleges to reduce spending by 4.5% in the current fiscal year, although no information has been released about how the savings is being used.
The state attorney general filed a lawsuit contending that Bevin did not have the authority to make the cuts, and the case is pending.
The Bluegrass State has seen its ratings downgraded as a result of the growing pension obligations in the Kentucky Teachers’ Retirement System and the Kentucky Retirement System.
KTRS, the worst-funded plan, had a net pension liability of $24.4 billion as of June 30, 2015, leaving it funded at 42.5% under new pension accounting standards.
In March, Standard & Poor's said pension liabilities led it to cut the Kentucky Turnpike Authority's bonds ratings to AA-minus from AA.
S&P also downgraded the state’s issuer credit rating to A-plus from AA-minus last September, making it one of only three states with ratings in the single A-category.
