BRADENTON, Fla. — Kentucky Gov. Steve Beshear is warning that the Legislature’s failure to adopt a budget could lead to a shutdown of government for the first time in the state’s history.
The new budget also is necessary to fund debt service for the fiscal year that begins July 1, Beshear said Wednesday.
Kentucky is scheduled to pay $571.2 million in debt service for various state issuers in fiscal 2011. Another $80.2 million for university debt service and $90.5 million for local school district debt service is also due. The first debt service payment from the state general fund of $14.6 million must be paid July 15, according to Brett Antle, deputy director of the Office of Financial Management.
Lawmakers were unable to reach agreement over how to plug a $1.5 billion budget hole so they simply ended their annual session April 15 and went home without having passed any spending plan.
Kentucky has already postponed pending bond sales, OFM’s executive director, Tom Howard, said after the legislative session ended.
“Based upon the lack of a legislatively enacted budget for the executive branch of state government and the advice of bond counsel, we are delaying all new-money and refunding transactions until such time as there is an enacted budget,” Howard said.
The state has authorized approximately $900 million of bonds for various projects that cannot be financed until a budget is passed, he said.
Analysts have warned the state for some time that its double-A ratings are in jeopardy without structural balance. Kentucky does not have any general obligation debt outstanding and issues debt mainly through lease obligations with various state agencies.
So far, lawmakers have shown no sign that they are any closer to a compromise over the spending plan for fiscal 2011, although Beshear said he is in touch with top lawmakers from both chambers.
“I am actively working with legislative leadership to reach agreement on a budget as soon as possible,” Beshear said. “But we must know the implications of what we are facing if a budget is not enacted.”
Because of a Kentucky Supreme Court decision in 2005 over the interpretation of the state’s constitution, Beshear said his authority to keep all government agencies operating without a budget is restricted. Essential services — such as those provided by the state medical examiner’s office, mine safety inspections and rescue services — would be shuttered if the fiscal year begins without an adopted budget.
Because the court ruling has not been tested, the Democratic governor said he could also be required to shut down state police, motor vehicle enforcement, veterans nursing homes, licensing agencies and some ongoing road projects.
Despite the budget impasse, Kentucky’s credit rating was raised to Aa1 from Aa2 when Moody’s Investors Service recalibrated its ratings on April 19, while also maintaining a negative outlook.
Fitch Ratings also upgraded the state to AA from AA-minus and maintained a negative outlook when it recalibrated its ratings on April 5.
Standard & Poor’s issuer credit rating for Kentucky is AA-minus with a stable outlook.
