Credit rating agency Moody’s is labeling Kentucky’s latest stab at pension reform a “credit negative” for the state.
Tom Aaron, a senior analyst with Moody’s, says the agency is taking a negative view of the reforms meant to provide relief for regional universities, health departments, and other quasi-public agencies for two reasons for two reasons.
"First is that the new law will push a pension cost increase out a year. Deferring pension costs doesn't actually lower them over the long term. It just simply moves them to the future where they will actually end up costing a bit more," he tells WUKY. "And the second reason is that this legislation increases the likelihood that the state government is going to ultimately be responsible for a greater share of the unfunded pension liabilities."
In addition to freezing pension costs for the entities for another year, the legislation also allows agencies to buy their way out of the system altogether – either by paying a lump sum or in installments. Still, the credit rater says even discounted payments would be favorable to pension-driven bankruptcies.
Moody’s calculates Kentucky’s adjusted net pension liability at $48 billion, landing the state among the worst offenders in the country.
"Annually we add up all the unfunded pension liabilities of the 50 states. Kentucky is one of the highest in our most recent survey. They were third highest when we measured their unfunded liabilities relative to their revenues," Aaron explains. "The other two states above them would have been the states of Illinois and Connecticut."
The agency says Kentucky's funding gap is “largely driven by years of very weak contributions.”
Gov. Matt Bevin has acknowledged the law doesn’t trim the state’s pension debts, but he has called it a “remarkably responsible and appropriate next step in moving toward financial solvency.”
