October 9, 2018

#46 | Ranking the States by Fiscal Condition: Kentucky

Summary

On the basis of its solvency in five separate categories, Kentucky ranks 46th among the US states for fiscal health. Kentucky has between 0.87 and 1.75 times the cash needed to cover short-term obligations, well below the US average. Revenues only cover 98 percent of expenses, with a worsening net position of –$125 per capita. In the long run, Kentucky’s negative net asset ratio of 1.15 points to the use of debt and large unfunded obligations. Long-term liabilities are higher than the national average, at 138 percent of total assets, or $9,960 per capita. Total unfunded pension liabilities that are guaranteed to be paid are $106.59 billion, or 61 percent of state personal income. OPEB are $5.92 billion, or 3 percent of state personal income.Share this

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 39th.)
  • 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 46th.)
  • 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 43rd.)
  • Trust fund solvency measures how much debt a state has. How large are unfunded pension liabilities and OPEB liabilities compared to the state personal income? (Kentucky ranks 43rd.)

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.

To read all our work on Kentucky, go to mercatus.org/states/kentucky.