A Citizen's Guide to Kentucky's Pension Crisis | Page 11

Driving up public project costs
BOND RATING AGENCIES have lowered Kentucky’s credit rating

PENSION TERMS
DEFINED
BOND RATING AGENCIES

several times in recent years, citing the state’s huge unfunded pension liabilities

Companies that assess whether bonds

as a key factor. The most recent downgrade was by Standard and Poor’s Rating

or other debt securities – and the private

Service in September 2015. Failure to pay down Kentucky’s unfunded pension

companies and governments that issue
them – are credit worthy. The three primary

liabilities will further affect the state’s credit rating, increasing the state’s cost

bond rating agencies in the United States

to borrow money and limiting public construction projects that create private

are Standard and Poor’s, Moody’s and

sector jobs and spur economic growth. A real-world example: A downgrade

Fitch. Bonds are rated using a letter-based
system (AAA, AA, A-, B, etc.) that indicates

of Illinois’ credit rating due to pension liabilities even higher than Kentucky’s

the risk of default and the financial stability

increased the cost of a $1.3 billion bond issue for construction projects in that

of the issuer.

state by $95 million over the term of the bonds. This increased cost was enough
to fund the construction of at least four high schools or 12 elementary schools.

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