July 11, 2017

#47 | Ranking the States by Fiscal Condition: Kentucky

Summary

On the basis of its fiscal solvency in five separate categories, Kentucky ranks 47th among the US states for its fiscal health. On a short-run basis, Kentucky has between 84 percent and 223 percent of the cash needed to cover short-term obligations. Revenues exceed expenses by 2 percent, and net position improved by $122 per capita in FY 2015. On a long-run basis, Kentucky performs poorly. A net asset ratio of −1.16 points to the use of debt and unfunded pension obligations. Long-term liabilities are 133 percent of total assets, producing a long-term liability per capita of $9,249. On a guaranteed-to-be-paid basis, unfunded pension obligations are $91.52 billion, or 53 percent of state personal income. OPEB is 3 percent of state personal income. 

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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 39th.)
  • 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 37th.)
  • 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 41st.)
  • 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 44th.)

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