State Budget Practice Report Cards and Budget Resource Guide
Kentucky was tied with New Jersey in 2016 for having the worst-funded state pension, with only 31 percent of assets needed to meet obligations. By 2019, Kentucky’s funding level had risen to 45 percent, allowing the state to overtake New Jersey and Illinois at the bottom of the pack. Its progress resulted from reforms that pushed the state into aligning total annual contributions for five plans that make up the Kentucky Retirement Systems–as well as that for the separate Kentucky Teachers’ Retirement System—with actuaries’ recommended contributions. The improvements helped Kentucky achieve a C average in legacy costs for fiscal 2015 through 2019. Even as it worked to lessen pension underfunding, the state consistently contributed to other postemployment benefits (OPEB), primarily health care, on an actuarially recommended basis.
Kentucky’s C average in budget maneuvers reflects frequent deferrals of recurring expenditures to achieve balance. Since 2012, the state has moved a portion of its payroll into the next fiscal year. It has also used money from special funds to shore up the general fund, as in a transfer of $310 million from the Kentucky Employees’ Health Plan to the general fund in the biennium that included fiscal 2019.
The state’s average grade of C in reserve funds resulted from a lack of clear policies to guide when and how money set aside in its Budget Reserve Trust Fund can be used. Although Kentucky has a policy to replenish the account, it has limited its deposits and had just 1.1 percent of general fund expenditures in the rainy day fund in fiscal 2019. This left the state with the fourth-lowest percentage of expenditures in a rainy day fund among all states.
To emphasize the need for clear and comprehensible budgets to inform citizens, promote responsible policymaking, and improve fiscal stability, the Volcker Alliance in 2016 began a study of budgetary and financial reporting practices of all fifty states. The Volcker Alliance’s mission is to improve the effectiveness of the administration of government at all levels. Making state budgeting more transparent and accountable is an important part of that goal.
The report cards found here contain grades of the state's budgetary practices during the fiscal years of 2015 through 2019. Each state received marks in five critical categories, based on their adherence to best practices in several key budgeting indicators. The five categories covered methods used to achieve budgetary balance as well as how budgets and other financial information are disclosed to the public.
States received grades of A to D-minus (there are no “failed states”) for their procedures in estimating revenues and expenditures; their use of one-time actions to balance budgets; how they oversee and use rainy day funds and other fiscal reserves; the adequacy of their funding of public worker retirement and other postemployment benefits; and the quality of transparency of budget and related financial information. The grades are based on research conducted by public finance and budgeting professors and students at eight US schools of public administration or policy. The universities’ research efforts were augmented by Volcker Alliance staff, data consultants at Municipal Market Analytics, and special project consultants Katherine Barrett and Richard Greene.
State Budget Sources
State Budget Sources: An Annotated Guide to State Budgets, Financial Reports, and Fiscal Analyses is a resource published by the Volcker Alliance designed to help public officials, policy advocates, journalists, academics, and concerned citizens fully understand the critical fiscal decisions that governors and legislators must make. The guide includes the links below to budgets for this state as well as legislative analyses of budget bills and treasurers’ or comptrollers’ monthly state cash-flow statements; capital spending plans; reports on public-worker pension funding and returns; and reports by local and national fiscal research organizations, bond rating firms, and associations of state fiscal and finance officials.