A bill to cap state debt at 6 percent of general fund revenue cleared the Senate’s committee on state and local government Wednesday with bipartisan support.
Senate Bill 10, sponsored by Senator Joe Bowen, R-Owensboro, was passed by the committee three times last year and the full Senate once, but it stalled in the house.
Bowen urged lawmakers to adopt the bill because of a growing sense of urgency.
“Our general fund debt ratio is not improving, continuing to add more debt than we pay off. Since I presented this bill last year, our bond rating has dropped,” he added.
Kentucky has an AA- credit rating from the Standard & Poor’s services firm. The highest rating is AAA, five levels up from Kentucky’s. The lower the rating, the more it costs to borrow.
Kentucky, along with six other states, has been labeled a “death spiral state” by Forbes Magazine, which encouraged businesses and homeowners not to locate there because of the seven states’ debt ratios, Bowen said.
“That’s the company we’re keeping,” he added.
Kentucky’s current general fund debt-supported ratio is more than 8 percent, according to Bowen, not the 6.5 percent ratio typically embraced. Six percent, he said, is a nationally recognized percentage used by bond-rating agencies.
“What this ratio represents is debt we have allocated, and what we actually have on the books,” he said.
Even if the limit is adopted, Bowen said, Kentucky still would not be able to reduce its debt to a level that would allow it to take on new debt until 2021. The state’s debt totals approximately $63.7 billion, including outstanding official debt, pension, post-employment benefit liabilities, Unemployment Trust Fund loans, and the 2013 budget gap.
Bowen, who chairs the committee, called passage of the bill a moral issue.
“It is immoral to pass along to future generations the irresponsible decisions that we’ve made,” he said.
Kentucky, he said, ranks fifth in the nation for its debt to GDP ratio and seventh for debt to personal income and 10th in debt per capita.
“Each and every individual in the state is responsible for $14,589 worth of debt the state of Kentucky has acquired,” Bowen said. The proposed limit, he said, would confine the legislature to operating within that debt limit, which “most people think we need.”
Sen. Christian McDaniel, R-Latonia, also spoke in favor of the bill, agreeing with Bowen that failing to address Kentucky’s debt hinders its competitiveness in attracting new business and industry.
“We have to attract and retain high quality employers and by extension jobs,” he said.
Although preventing the state from issuing new debt until 2021 would “a bitter pill to swallow,” McDaniel said, “I think it’s critical to get our house in order and to do it now.”
Sen. Morgan McGarvey, D-Louisville, also supported the measure, noting it would take bipartisan cooperation to fix the state’s financial woes. He also encouraged legislators to support, in conjunction with this bill, allowing higher education institutions to bond their own debt.
Committee member Sen. Walter Blevins, D-West Liberty, passed on voting for the bill, so it would not become a consent item.
“I think it needs to be debated on the floor,” said Blevins, adding he believes the measure is linked to tax reform,” he said.
“We don’t have an adequate tax system. If we did, we could pay off a lot of that debt faster, which we should. I think everything needs to be tied to tax reform. What does that say, when we can’t issue new debt? Even businesses have debt.”.
Blevins too said bipartisan support would be essential to resolving the debt and tax issues.
“Since we’ve had divided government, we keep going down and down and down because no one is willing to take the hard votes,” he added.
Agency and road fund debt would be excluded from the proposed debt-ratio limit, as would the Kentucky Infrastructure Authority and state higher education institutions.
Carrie Stambaugh can be reached at firstname.lastname@example.org or (606) 326-2653.