Kentucky's revenue miss could impact pension reform
BRADENTON, Fla. - Kentucky’s general fund revenues continue to miss official estimates as state officials grapple with a major pension reform proposal backed by Gov. Matt Bevin.
Bevin has said restructuring of the state’s eight pension plans – which are among the worst funded in the country - will cost taxpayers “but we are going to manage the cost.”
The cost of reform has not been released, but without it the governor’s administration has said deep state spending cuts would be required.
State general fund revenues, which are less than official estimates so far this year, won’t make pension funding decisions easy.
In the first four months of fiscal 2018, State Budget Director John Chilton said total general fund revenue collections have increased just 0.6%.
Collections must rise by 3.1% over the final eight months of the year to achieve the official year-end revenue estimate of $10.7 billion on which the state budget is based.
“This causes concern that general funds receipts will achieve the growth needed,” Chilton said.
The Consensus Forecasting Group officially revised the fiscal 2018 general fund estimate at its meeting on Oct. 13, calling for growth of 2.3% for the current year.
In an August review of state and national economic conditions, the CFG warned that Kentucky could see a general revenue shortfall of as much as $206 million by the end of the fiscal year.
October’s general fund receipts were $51 million less than what was collected a year ago, a decrease of 6%, according to Chilton. Total revenues for the month were $798.4 million, compared to $849.4 million in October 2016.
“The drop in October general fund revenues was adversely affected by a one-time event, as well as a timing issue,” Chilton said, adding that those events impacted corporate and limited liability entity tax collections.
Income from corporations and limited liability entities were hindered by a one-time, multi-year collection settlement of $32 million, which inflated October 2016 figures, he said. Year-to-date, corporations’ tax collections have fallen 8.2%.
Property tax collections also fell largely due to a timing issue in the public service account, decreasing 67% in October. They are down 27.9% year-over-year.
The state’s uneven revenue picture could strain resources needed to deal with pension reform.
Bevin has said he is considering a special session after Thanksgiving to deal with the issue.
The proposed plan includes placing newly hired, non-hazardous duty employees and teachers into 401(k)-style defined contribution plans. It also would require that the state pay the actuarially required contribution every year, over 30 years.
By some estimates, the cost of restructuring the state-sponsored pension plans could be as high as $2 billion but no information has been released about where state officials intend to find the revenue, other than cutting state budgets.
Teachers’ groups have also expressed opposition to some of the governor’s plan for their pensions. Most Kentucky employees and teachers are not eligible for Social Security.
Addressing underfunded pension plans has been a key rating challenge for Kentucky, Fitch Ratings analyst Eric Kim said Oct. 30, after the governor released a draft of his proposal
The wide-ranging plan could gradually improve the state’s credit, Kim said, adding, “However, the proposal faces likely legal and possibly legislative challenges before becoming law.”
Kentucky's recurring funding of pension contributions also remains uncertain, Fitch said.