Kentucky gets an upgrade from S&P to A-plus

S&P Global Ratings on Thursday upgraded Kentucky’s issuer credit rating to A-plus from A, the Bluegrass State’s second upgrade in less than two months.

“The upgrade reflects our view of Kentucky’s commitment and execution to strengthen its budgetary flexibility and long-term financial stability, which we expect will continue in the current and future budget cycles,” said S&P credit analyst Anne Cosgrove.

The rating outlook, previously positive, is now stable at the higher new rating.

The upgrade is supported by the state’s “sustained trend of structural balance, with operating surpluses that have led to a robust budgetary trust stabilization fund at its highest level ever, continued pension funding commitment following pension reforms, and funding these pension costs in excess of actuarially determined contributions,” S&P said.

“This is good news for ‘Team Kentucky’ as we show everyone that our economy is booming, our pensions are strong and our fiscal house is in order due to strong management and smart choices that put our people first,” said Gov. Andy Beshear.

In connection with the issuer rating upgrade, S&P raised the long-term rating on the state’s appropriation-backed obligations linked to the state rating, issued by the State Property and Buildings Commission and other state agencies, to A from A-minus.

S&P also raised Kentucky’s lease debt backed by appropriations from the Administration Office of the Courts, issued for county court projects, to A-minus from BBB-plus. Additionally, S&P Global Ratings upgraded certain issues linked to Kentucky’s public university intercept program to A from A-minus.

S&P said the upgrade reflects the state’s strengths, which include a recent trend of structural balance and no reliance on one-time measures to balance the budget; improved governance, including pension reform and a willingness to cut spending to balance the budget; a healthy trust stabilization fund now at its highest level ever; and solid economic trends with continued investments in the auto industry.

S&P noted the strengths are somewhat mitigated by comparatively high fixed costs with significant pension liabilities, and a large percentage of Medicaid costs that could pressure future budgets.

“The stable outlook reflects our view that Kentucky will continue to have structural balance and maintain healthy levels of budgetary trust fund reserves over the outlook period,” S&P said. “In addition, we believe the state will continue to maintain its funding commitment to its pension funds and have solid revenue collections.”

In May, Fitch Ratings raised Kentucky’s issuer default rating to AA from AA-minus and upgraded the state’s annual appropriation-backed debt and other commonwealth IDR-linked debt to AA-minus from A-plus. Fitch assigned a stable outlook.

Fitch said its upgrade “reflects material improvements to Kentucky’s fiscal reserves since 2020 as a result of improved budgetary discipline and a post-pandemic surge in tax collections now in its third year.

Beshear noted that 46,300 full-time jobs have been created since he became governor in 2019 and about 860 private-sector new-location and expansion projects totaling more than $26 billion of investment have been announced.

Over the past 15 months, the state’s jobless rate has come in between 3.8% — the lowest rate ever recorded — and 4%, which is the longest period with the lowest unemployment rates in state history. It has also seen job growth of 2.3% from pre-pandemic levels.

Moody’s Investors Service rates Kentucky Aa3 and Kroll Bond Rating Agency rates it AA-minus. Both agencies have stable outlooks on the credit.