Credit Rating Agency Identifies Kentucky's Poor Budget Decisions
While we were away, the credit rating agency Fitch Ratings downgraded their assessment of Kentucky's ability to repay it's debt. A ratings downgrade has some self-fulfilling tendencies to it -- a lower rating can make new debt more expensive, meaning that it is harder to adjust future payments.
In the explanation for the downgrade, Fitch's offers a critique of Kentucky's budget. From mycn2:
Specifically, Fitch explained the rationale for downgrading Kentucky on several key points:
Depleted budget reserves
Continued reliance on debt restructuring to save money
The General Assembly making the assumption that Congress will extend the Medicaid reimbursement increase for another six months through June 30, 2011. If it doesn't Kentucky will have a $238 million hole in its spending plan.
Total debt levels -- roughly 6.8 percent of the state's revenue -- are "at the higher end" of its traditional range
Kentucky's economy "entered the recession later than its neighboring states and the national as a whole," which could cause revenue to continue to fall or stay stagnant.
These are the residual effects of bad budgets passed in 2007-2009, not the consequences of the most recent effort. It also identifies specific points for future improvement.
