Kentucky Governor Seeks to Call Special Session on $26B Liability

BRADENTON, Fla. - Kentucky Gov. Steve Beshear said yesterday that he would call a special session of the General Assembly to focus on the state's pension liabilities if key lawmakers would first agree on reforms to the system, which now has an unfunded liability of $26 billion.

The state's budget and pension liability were among the reasons why Fitch Ratings and Moody's Investors Service last month placed a negative outlook on some or all of the state's debt. Moody's also revised the outlook to negative on the commonwealth's issuer rating. Analysts for both agencies were concerned about the use of one-time sources of revenues and reserves to support the state budget because of declining revenue collections.

Pension reform became a debacle during the recent legislative session, which ended April 15. Both houses could not strike a deal in the final hours of the session on legislation reforming pension funds for future state employees and teachers.

Since then, individual lawmakers as well as officials from cities, counties, and districts have urged Beshear to call a special legislative session to deal with huge future pension contribution payments they say they may not be able to afford.

The governor said yesterday that if legislators could agree on major pension reform issues in the next three weeks he would call a special session to enact the reforms before June 30, the end of the current fiscal year.

"Democrats and Republicans, public employees and public employers, we all agree that the state's public pension problem is a real mess," he said in a statement. "And we all agree that the failure to pass meaningful pension reform during the last legislative session has made the problem worse. And most significantly, we all agree that we must act now to stop the bleeding of taxpayer dollars."

Beshear met with key lawmakers yesterday and proposed draft legislation containing the provisions of the two House and Senate pension bills from the 2008 session that used the same language or shared principles, as well as recommendations from a blue ribbon commission appointed by the governor on pension reform.

He also appointed a 27-member working group to resolve disputed issues related to restructuring the pension system and said he would call a special session the week of June 23 to take up a compromise bill.

"Agreement on these reforms will result in savings of nearly $500 million annually to state and local government obligations to fund the pension system," Beshear said. "It will also provide city and county governments and school districts with at least $50 million in immediate savings starting July 1."

Moody's on April 21 assigned a rating of Aa3 and a negative outlook to the Kentucky State Property and Buildings Commission's sale of $205.1 million of lease revenue bonds, which priced April 30. Moody's also affirmed the commonwealth's issuer rating of Aa2, the Aa3 rating on the general fund and road fund-supported lease appropriation debt, and the A1 rating on non-university agency lease-appropriation debt - all issued through various state entities. The agency placed a negative outlook on all those credits along with the Kentucky School District Enhancement Program and the Kentucky Public University Intercept Program.

"The negative outlook reflects Kentucky's ongoing economic and financial weakening, leading to revenue underperformance and sizable budget deficits," Moody's analyst Maria Coritsidis said at the time. "In addition, the outlook reflects a draw-down of ending and reserve balances, and a strong reliance on one-time resources to balance the current year budget and the biennial budget for fiscal years 2009 and 2010."

For similar reasons, Fitch April 24 changed the outlook to negative from stable on the AA-minus rating of the State Property and Buildings Commission's sale. Fitch also affirmed the AA-minus on $5 billion of appropriation bonds previously issued by Kentucky agencies and revised the outlook to negative.

In a report on April 24, Standard & Poor's assigned an A-plus rating to the State Property and Buildings Commission's bonds. In an April 30 report, Standard & Poor's said the state's issuer credit rating remained AA-minus with a positive outlook, but it recognized the budgetary difficulties the government is experiencing.

Kentucky does not issue general obligation debt.

 

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