BRADENTON, Fla. – Kentucky, after plugging billions into its massively underfunded pensions this year, is hitting the brakes on transportation spending.
The Kentucky Transportation Cabinet was hit by the state-ordered budget cuts at a time when its main funding source – state taxes on motor fuels - have declined.
In fiscal 2015, the fuel tax declined by 6.5 cents per gallon, and was projected bring in $152 million less in the current year.
Overspending has also contributed to the road fund's low cash balance, according to Transportation Cabinet Secretary Greg Thomas.
While revenues totaled $4.5 billion over the 2014-2016 biennium, expenses totaled $5.03 billion.
As of Tuesday, the state road fund balance was $352.83 million but officials project it will drop to $54 million by August, leaving little for emergencies.
The Interim Joint Committee on Transportation on Tuesday took action to maintain cash flow for work underway in the Department of Transportation's pipeline.
The committee implemented the Pause-50 program, delaying the start of any new projects in fiscal 2017 in order to pay current expenses and rebuild the fund with the goal of having $50 million available for new projects in fiscal 2018.
"The bottom line is that our current level of spending is unsustainable, and quite frankly, unacceptable," Thomas told the committee Tuesday. "However, we feel that we have the situation under control."
Although the state substantially increased pension funding in the recently adopted 2017-2018 budget, it will simply allow the retirement funds to "tread water" and prevent the net pension liability from growing, Moody's Investors Service said in a comment Thursday.
In April, Gov. Matt Bevin signed the $22.3 billion 2017-2018 biennial budget, which cut most state agencies by 9% and universities by 4.5% in order to increase pension contributions by an additional $1.4 billion.
The extra funding buttressed the two largest plans - the Kentucky Retirement Systems Non-Hazardous plan and the Kentucky Teachers Retirement System – and provided almost the full actuarially determined contribution, according to Moody's, which assigns an Aa2 rating and stable outlook to Kentucky.
The additional revenue also eased long-term pressure on Kentucky's budget by reducing the risk of depleting pension system assets, said analyst Anne Cosgrove.
However, she said, the state remains an outlier in its pension burden, with only Illinois and Connecticut faring worse in Moody's adjusted net pension liabilities relative to revenue.
"The budget does demonstrate significant willingness to move toward structural balance and improve the funding of long-term liabilities," Cosgrove said. "Nonetheless, Kentucky's higher pension costs are here to stay given the very low funded status of the plans, and sustaining the associated fixed cost burden will be an ongoing fiscal challenge for the state."
As of June 30, 2015, KTRS was 42.5% funded, while the five plans that comprise the Kentucky Retirement Systems have average funding of 46.6%.