With an unfunded pension liability of more than $21 billion, Kentucky’s finances are obviously not in a good place — but the problem is even worse than you might think.
A new study by researchers at George Mason University that ranks all 50 states by their fiscal health placed Kentucky near the very bottom, in 47th place. Only Massachusetts, Illinois and New Jersey ranked lower.
State legislators will have to tackle this problem head-on when they convene for a special session this fall. Fortunately, Gov. Matt Bevin has already signed into law several historic reforms this year to grow the economy and reduce government spending.
The first was “right-to-work” legislation, which protects individuals from being forced to join a union or pay union dues as a condition of employment. In recent years, right-to-work states have enjoyed both lower unemployment rates and higher rates of job growth compared to the rest of the country.
The legislature also passed a related bill, the Paycheck Protection Act, which prohibits employers from withholding union dues from employees’ paychecks without their express authorization.
There are already signs that these reforms are delivering jobs as promised. Since the passage of right-to-work, Kentucky has seen an unprecedented level of investment. By May, the state had already reached an annual record of $5.8 billion in planned capital investment (the previous record of $5.1 billion was set in 2015).
This investment, which includes billion-dollar projects from Amazon and Toyota, will usher in about 9,500 new jobs. Expanding worker freedoms is clearly paying dividends for the Bluegrass State.
In a win for taxpayers, the legislature also repealed the state’s “prevailing wage” law, which mandated that contractors pay specified wage rates on public works projects. In practice, these wage rates closely tracked those paid by unions, thus protecting unionized contractors from competition during the bidding process.
The prevailing wage may have been great for unions, but it was a colossal waste of taxpayer dollars: The Kentucky Legislative Research Commission found that labor costs increased as much as 51 percent for public school construction projects due to the prevailing wage.
By placing public works projects on equal footing with private projects, the prevailing wage repeal is already resulting in significant savings. For instance, the city of Fort Mitchell in northern Kentucky managed to save $75,000 on a road project by seeking new bids after the repeal.
The new ranking of Kentucky’s fiscal health underscores the importance of passing all these reforms, but legislators will need to go much further to solve our fiscal crisis. In the fall session, their priorities should be enacting long-term pension reform, passing pro-growth tax reform and eliminating corporate welfare from the budget.
As their model, they should look to North Carolina, which since 2013 has cut its personal income tax rate by 30 percent and the corporate rate by 63 percent. By providing tax relief and keeping state spending on a short leash, North Carolina has achieved repeated budget surpluses in recent years. These are the reforms Kentucky needs to achieve long-term fiscal health.
Part and parcel of tax reform efforts will be eliminating all forms of special carve-outs and other subsidies for special interests. That includes, for example, the millions spent each year to attract filmmakers to shoot movies in Kentucky. The tax code is unfortunately riddled with such handouts, and ending them could provide much-needed funds for the state’s pension liabilities.
Kentuckians shouldn’t have to settle for a government that ranks 47th in fiscal health. Lawmakers should capitalize on their successes from earlier this year and pass new reforms to ease the tax burden, grow our economy and eliminate taxpayer giveaways for good.
Julia Crigler is the Kentucky state director of Americans for Prosperity.