What Went Right in Kentucky (And How Its Coal Is Risky Business)

Unlike its more fiscally-troubled siblings of Illinois and California, Kentucky successfully tightened its belt and adjusted to post-recession realities. Yet it remains at risk from President Obama’s recently-proposed coal efficiency mandates and stands on the front-line of the cost of these regulations.

Last week the bond rating agency Moody’s Investors Service, my former employer, changed its outlook on the state of Kentucky to stable from negative, a label in place since March 2011, when The Bluegrass State was downgraded a notch to Aa2 due largely to its reliance on one-time budget fixes and its sizable pension liability. A change from “negative” to “stable” doesn’t mean the rating has changed now, just that analysts have a more favorable look toward Kentucky’s financial future.


Source: Moody’s Investors Service

Yet Kentucky’s not out of the woods. Its unemployment rate still lags behind the national rate, and it has recovered just 65% of jobs lost during the recession, according to Moody’s analyst Lisa Heller, who warns also of the impact to Kentucky of recently-announced target from the Obama administration to cut carbon pollution from existing US power plants by 30 percent by 2030 (based on 2005 levels). Ted Gayer of Brookings Institution points out what’s concerning about the Administration’s approach to the standard is that the Environmental Protection Agency’s methodology for calculating the supposed economic benefit of this rule is a sleight of hand that undervalues the cost of compliance. Kentucky will be a state bearing a heavy brunt of compliance.

Source: Moody’s Investors Service

“As a heavy user and producer of coal-fired energy (92% of power generated in the state and 6th largest produce of coal-fired power, according to the US Energy USEG +0.5% Information Administration), Kentucky will face challenges weaning itself away from coal,” Heller writes.

Obama’s anti-coal targets have played big in the state’s U.S. Senate race, with Democratic challenger Alison Lundergan Grimes distancing herself from the president as she seeks to topple Senate Republican Leader Mitch McConnell.

Kentucky’s the perfect case study of a state emerging from vulnerabilities wrought by the Great Recession only to face headwinds from well-meaning regulators in Washington that threaten a fragile state recovery.



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