KBRA Affirms A+ Rating, Stable Outlook on Commonwealth of Kentucky Revenue Bonds
3 Sep 2026 | New York
KBRA affirms the long-term rating of A+, with a Stable Outlook on Revenue Bonds issued by the Commonwealth of Kentucky State Property and Buildings Commission (the "SBPC") on behalf of the Commonwealth of Kentucky (the "Commonwealth"). As Revenue Bond debt service is subject to appropriation by the Commonwealth, KBRA concurrently affirms the Commonwealth's implied General Obligation (G.O.) rating at AA-, with a Stable Outlook.
Revenue Bonds are secured by and payable from rental payments made by the Finance and Administration Cabinet of the Commonwealth (the “Cabinet”) to the SPBC pursuant to a Lease. The SPBC has further entered into subleases with various state agencies which utilize the leased projects. For each biennial budget period, the Lease requires the Cabinet to seek legislative appropriations sufficient to make rental payments in amounts adequate to pay debt service on Revenue Bonds issued by the SPBC. While the General Assembly is not obligated to appropriate funds in future years, the Cabinet has covenanted to annually include an appropriation request for debt service. The Bonds are not secured by a lien on properties constituting the project.
Key Credit Considerations
Credit Positives
- Ongoing progress in addressing chronic underfunding of pension obligations.
- Strong operating performance, resulting in generally balanced financial operations and healthy reserves over the past two biennia.
Credit Challenges
- Despite recent pension-funding progress, the unfunded liabilities of the Commonwealth’s retirement systems dwarf outstanding bonded debt and require continued, disciplined budgeting.
- Lagging economic performance, as measured by growth and wealth levels, relative to the region and the U.S.
- An increasing need to manage revenue uncertainty associated with the initiative to eliminate personal income taxes, together with planned modest reductions in the Budget Reserve Trust Fund.
Rating Sensitivities
For Upgrade
- A continued trend of meaningful improvement in the long-term liability burden.
- Demonstrated ability to grow revenues as income tax rate reductions are implemented.
- Expansion of economic base that contributes to improved wealth and income metrics.
For Downgrade
- Failure to maintain momentum toward pension sustainability.
- Material deterioration in General Fund revenue performance leading to significant reserve declines.
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