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Friday, April 01, 2011

Oh Crap: Moody's Investors Service Downgrades Kentucky's Bond Rating, Maintains NEGATIVE Outlook For Kentucky.

Moody's lowers Kentucky bond rating

FRANKFORT, Ky. — Citing continuing budget problems, Moody's Investors Service this week downgraded its ratings on Kentucky bonds.

Moody's lowered by one notch each two categories of state bonds: those supported by the General Fund and those supported by funds of state agencies.

And Moody's maintained a “negative” outlook for Kentucky.

“Kentucky's negative outlook reflects significant fiscal stress related to the economic downturn, a large and growing unfunded pension liability and a trend of reliance on non-recurring budget balancing measures,” the agency's update on Kentucky said.

The Beshear administration's Finance and Administration Cabinet released a statement that attributed the action to the impact of “the worst economic recession of this generation” on nearly all states.

The administration statement said the state's current budget has the smallest General Fund debt authorization since 1996 and that the administration promoted pension changes adopted by the General Assembly in 2008.

“Kentucky's economy is resilient and continues to show signs of improvement. We are confident we can work our way through this difficult financial period,” the statement said.

Tom Howard, executive director of financial management in the Finance and Administration Cabinet, said in the statement that current market conditions make it nearly impossible to make predictions.

But he added that he doesn’t expect “a material impact” on the cost of Kentucky’s future borrowing resulting from the downgrade.

Senate President David Williams, R-Burkesville, said the Moody's report “reflects what we have been talking about in the Senate's majority in this session.”

Among other things, Williams noted that Moody's cited a problem in balancing the next state budget because one-time savings and revenues are being used to balance the current budget.

The Senate's Republican majority attempted to address that problem and fill a hole in the state Medicaid budget during the special session with across-the-board spending cuts.

The Democratic-controlled House approved the Senate plan last week after reaching an understanding that Beshear would veto the spending cuts. Beshear did so last week, leaving a final bill that resembles his proposal to balance the Medicaid budget this year with savings he says he can find in Medicaid next year.

The Senate is scheduled to reconvene Wednesday for the final day of the session to vote to override Beshear's veto. But the House adjourned last week with no plans to return, and Beshear's veto will stand unless both chambers vote to override it.

On the positive side, Moody's noted signs that Kentucky revenues have been growing slightly more than projected and that the state has a “history of financial control including close revenue monitoring and active response to shortfalls.”

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