Kentucky

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Summary

On the basis of its fiscal solvency in five separate categories, Kentucky ranks 46th among the US states and Puerto Rico for its fiscal health. On a cash basis, the state has between 0.75 and 2.08 times the cash needed to cover short-term liabilities. Revenues cover 98 percent of expenses, producing a deficit of $100 per capita. On a long-run basis, a negative net asset ratio of −0.36 and total liabilities accounting for 56 percent of total assets produce a long-term deficit per capita of $3,933. Total debt is $8.23 billion. Unfunded pensions are $78.33 billion on a guaranteed-to-be-paid basis, and other postemployment benefits (OPEB) add $4.35 billion in unfunded liabilities. These three liabilities are equal to 55 percent of total state personal income.

 

Key Terms

  • Cash solvency measures whether a state has enough cash to cover its short-term bills, which include accounts payable, vouchers, warrants, and short-term debt. (Kentucky ranks 40th.)
  • Budget solvency measures whether a state can cover its fiscal year spending using current revenues. Did it run a shortfall during the year? (Kentucky ranks 44th.)
  • Long-run solvency measures whether a state has a hedge against large long-term liabilities. Are enough assets available to cushion the state from potential shocks or long-term fiscal risks? (Kentucky ranks 45th.)
  • Service-level solvency measures how high taxes, revenues, and spending are when compared to state personal income. Do states have enough “fiscal slack”? If spending commitments demand more revenues, are states in a good position to increase taxes without harming the economy? Is spending high or low relative to the tax base? (Kentucky ranks 40th.)
  • Trust fund solvency measures how much debt a state has. How large are unfunded pension liabilities, OPEB liabilities, and state debt compared to the state personal income? (Kentucky ranks 45th.)

For a complete explanation of the methodology used to calculate Kentucky's fiscal health rankings, download the full paper and the dataset at mercatus.org/statefiscalrankings-2016-edition.