Loan paid by borrowing?

Late last night, Gov. Steve Beshear announced that the state has paid the $28 million interest payment that was due to the federal government by September 30, 2011. The state's loan has been used to pay for unemployment insurance benefits.

On one hand, Kentucky businesses dodged a big bullet. Without the commonwealth paying the interest, Kentucky businesses would have footed the penalty bill. They would have to pay roughly $400/worker, a cost totaling over $600 million.

The problem? How the money was paid. The commonwealth has again borrowed money from itself to pay the federal government. The governor took an "internal loan" to make up the difference needed for the interest pyament. While the governor has claimed budget surplus, how is it that the commonwealth continues to borrow funds from itself?

Sen. David Givens, R-Greensburg, questioned the governor's move: "I'm disappointed because basically what we've done in Kentucky is written a check for an account that doesn't have sufficient funds in it."

While in the short term, the problem has been addressed, how will Kentucky fare in the long run? Continuing to borrow more money we don't have doesn't seem promising to me.

Budget surplus!? Think again

The Beshear administration is touting a budget surplus for this fiscal year and claims that roughly $100 million will be deposited into the rainy day fund.

This is a bit misleading, no? When a state has billions of dollars in unfunded liabilities in public pensions and has to borrow $97 million from a future year's Medicaid budget to plug a hole in the current year's, an extra $100 million does not count as a "surplus".

Until the pension system is fully funded and Medicaid (which is currently on an unsustainable path) is on solid ground, claiming a surplus seems a bit premature.

Dr. John Garen on the state budget

Given recent budget shortfalls, pension crises and out-of-control spending, it is worth considering this discussion by Dr. John Garen, professor of economics at the University of Kentucky. In this video, Dr. Garen talks about reductions in spending as a responsible way to relieve budget tensions.

State revenue is up...so now what?

Earlier today, Governor Steve Beshear mentioned on Twitter that he was excited about revenues being up this month:

According to the Courier-Journal article that the governor references, this amounts to roughly $62.1 million more than a year ago. That's pretty good. I think we all probably wish our personal revenue was up 8% over last year.

What are the odds that the $62.1 million will be spent toward Kentucky's budget shortfall?

With revenues up, what would be the responsible fiscal action our state leaders should take? Let us know in the comment section!

Four reasons I wouldn't give Kentucky a small business loan

With the economy in the condition it is, banks and lending organizations are tightening their grip on the money they are willing hand out.  If I was a loan officer, one organization I would consider extremely risky and would deny for lending is the Commonwealth of Kentucky.

Here are four reasons why I wouldn't give a business loan to Kentucky...

1. Current financial standing: Kentucky is broke!  The state has too many outstanding financial obligations including unfunded liabilities from the federal government and an incredibly under-funded state pension system. 
2. Lack of business plan: Come on, guys.  Don't walk into my office and ask me for money without a plan! The General Assembly just spent thousands of tax payer dollars to meet for an additional session because they can't agree on how to make their state government more efficient and spend within their means.  To my knowledge, they never really solved the problem
3. Weak leadership in corporate office:  A budget proposed by the CEO of Kentucky that planned on raising a significant amount of revenue from a risky, not-yet-legal expanded gaming plan!? You can't plan on money from programs that haven't been approved by the legislature.  Give me a break.
4. Ineffective chain of command: Kentucky has too many middle managers more concerned with the success of their fiefdom and the longevity of their position than with the accountability and tough decisions that come with their job. Why would I give a loan to an organization that allows an employee whose department is failing to write their own criteria for a performance review!? 

Application denied.

UK economist John Garen discusses KY state budget

Dr. John Garen on Kentucky State Budget from freedomky on Vimeo.