KBRA Affirms A+ Rating, Stable Outlook on Commonwealth of Kentucky Revenue Bonds
16 Sep 2025 | 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.
A Surveillance Report will follow.
Key Credit Considerations
Credit Positives
- Ongoing progress in addressing the chronic underfunding of pension obligations.
- Strong revenue performance resulting in balanced financial operations and improved reserves over the past two biennia.
Credit Challenges
- Despite recent pension funding progress, the unfunded liabilities of the Commonwealth’s retirement system dwarf outstanding bonded debt and requires continued, disciplined budgeting.
- Lagging economic performance, measured by both growth and wealth levels, relative to the region and U.S.
- Increasing need to manage revenue uncertainty resulting from the initiative to eliminate personal income taxes.
The Stable Outlook reflects KBRA's view that key sources of General Fund revenues are likely to remain resilient through the full economic cycle, with the Commonwealth’s prudent management of expenses expected to offset income tax reductions and support maintenance of healthy budgetary reserves. The Stable Outlook is further supported by our expectation that the Commonwealth’s actuarial funding of retirement plans will continue.
Rating Sensitivities
For Upgrade
- Continued trend of a meaningfully improved 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 towards pension sustainability.
- Material decline in performance of General Fund revenues.
To access ratings and relevant documents, click here.