Editorials

Time for tough financial choices in Ky

Forget University of Kentucky football for a moment.

Consider instead the recent 47th place ranking of Kentucky's fiscal health by Barron's, a national business magazine.

While state budget director Mary Lassiter raised legitimate questions about some of the methodology that landed Kentucky in the fiscal cellar, there's still a warning signal that should be heeded.

It's the same one that Moody's pointed out last year when it downgraded Kentucky's credit rating, and that a special legislative task force on pension reform is facing right now.

Essentially it is this: The money the state takes in and can reasonably expect to in the future does not match up to the state's obligations. Those obligations include the Kentucky Retirement Systems, which have what is delicately referred to as a funding gap of $12.5 billion, a number Moody's estimated last year would continue to grow for another 14 to 15 years.

This dire state of affairs is the source of endless finger-pointing among the state's political leaders. But, truth to tell, the problems are so long-standing, their causes are so deep and pervasive that such bickering is almost meaningless.

Although Kentucky has begun to climb slowly out of the recession since Moody's report, registering revenue growth in the 2011 and 2012 fiscal years, the problems go deeper than the economic cycle, as Moody's noted. Among them are low per-capita income, where Kentucky ranks 46th or 47th in recent years, and an economy so reliant on manufacturing that in downturns when people stop buying big-ticket items we suffer severely.

There are also political issues that made the rating agency wary, including "history of late budget adoption," and "a trend of reliance on non-recurring budget balancing measures."

In addition to the pension reform task force, another effort, a blue ribbon commission appointed by Gov. Steve Beshear and led by Lt. Gov. Jerry Abramson, is considering how to modernize Kentucky's tax code.

They will both make recommendations that will be taken up in the next legislative session.

Face it, for Kentucky to move out of its basement rankings, there will be pain all around.

Tax reform will be an empty effort unless it results in a code that's more fair, produces more and more consistent revenue, gives local communities the authority to tax themselves to make improvements, and encourages economic diversification.

That's what we must have to provide adequate funding for schools and other essential services critical to economic growth. Kentucky's economic picture will never be bright while per-capita income trails almost every other state.

Likewise, pension reform will require some combination of increasing funding and reducing, or at least limiting, benefits.

While there are many legitimate options to consider, there are no miracles here, no investment bonanzas that will bail us out, no bond sales that will punt this problem so far into the future that we can forget about it today.

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