Governor Ernie Fletcher’s Communications Office
Governor Fletcher Announces $136.5 Million Budget Surplus for Fiscal Year 2006

Press Release Date:  Monday, July 10, 2006  
Contact Information:  Jodi Whitaker

Mike Goins

Governor directs part of budget surplus to state retirement systems

FRANKFORT, Ky. – Governor Ernie Fletcher today announced a $136.5 million General Fund surplus for Fiscal Year 2006, which ended June 30.

To ensure the state’s financial stability, the Governor directed $112.5 million of the surplus to the Budget Reserve Trust Fund, generally known as the “rainy day fund.”

Governor Fletcher also exercised his authority under the recent budget bill to transfer $24 million divided into equal shares to the Kentucky Employees Retirement System (KERS) and the Kentucky Teachers’ Retirement System (KTRS) Medical Insurance Fund.

“This surplus – our third consecutive surplus – is the result of deliberate, tough fiscal management and of a strong economy,” said Governor Fletcher. “Maintaining a strong budget reserve allows us to continue improving our bond rating while at the same time putting money aside for possible emergencies. Adding funds to our retirement systems will help our state fulfill long-standing commitments to public employees and give comfort, stability and assurance to retired teachers and public servants. Strong fiscal responsibility is crucial in our efforts to move Kentucky forward, and today’s announcement is another indication of how we are doing just that.”

“A strong budget reserve is important to all areas of state government because it helps us maintain funding in the event of a financial downturn,” said Sen. Dan Kelly (R-Springfield). “I am also pleased we are continuing to address the funding concerns of our pension systems.”

“This is tremendous good news for the people of Kentucky,” said Rep. Jeff Hoover (R-Jamestown). “This administration is continuing to look at ways to save money and manage government efficiently. I applaud Governor Fletcher this administration for their fiscal responsibility.”

“It is very wise to put this money into the retirement systems,” said Sen. Ed Worley (D-Richmond). “I understand the Governor’s commitment to the Budget Reserve Trust Fund, so I think this is a fair balance for the distribution of the money.”

Under the current budget bill, the only allowable uses for the General Fund surplus are limited to the retirement systems and the rainy day fund, which includes Necessary Government Expenditures.

The transfer of $112.5 million to the rainy day fund brings the amount to $231.5 million or 2.8 percent of projected FY07 General Fund revenue. The commonwealth’s statutory target for the fund is 5 percent of General Fund Revenue.

“The Governor has made a very prudent decision regarding the budget surplus,” said Sen. Tom Jensen (R-London). “He is shoring up the retirement funds for teachers and state employees while at the same time adding to our rainy day fund, which will help us maintain a good bond rating. I think this is an excellent decision on the Governor’s part.”

The Governor’s budget office attributes the General Fund surplus, in part, to revenue growth of $731 million largely due to Kentucky’s robust economy. The unexpected portion of this revenue growth, when adjusted for unbudgeted expenses, comprises the FY06 General Fund surplus.

In May, 2006, which is the last month for which seasonally adjusted employment data is available, Kentucky employment reached an all-time high of 1,845,700.

“This surplus goes to show the great efforts Governor Fletcher and his administration have made in running state government efficiently,” said Sen. Gary Tapp (R-Waddy). “The money being added to the retirement systems shows this administration’s dedication to continuing the commitments made by past administrations and the general assembly.”

In FY07 Executive Branch employer contributions to KERS are estimated to be $120 million from all funds.  Governor Fletcher’s transfer of $12 million to this fund is intended to increase the FY07 employer contribution by 10 percent.

Governor Fletcher’s transfer of $12 million to KTRS Medical Insurance Fund will relieve financial pressures on the KTRS pension system which have arisen from increased health insurance costs.

“I speak for the board in saying we are absolutely delighted to receive an additional $12 million in funding – an approximate 10 percent increase in what the governor and legislature appropriated to the Kentucky Retirement system in the last general fund budget,” said Bill Hanes, executive director of the Kentucky Retirement Systems. “We compliment the Governor for recognizing the funding issues at the state retirement systems and for making this contribution to the Kentucky Retirement System.”

“Transferring these funds to KTRS is a wonderful thing for Governor Fletcher to do for our retired teachers,” said Gary Harbin, executive secretary of the Kentucky Teachers Retirement System. “This money will go into our medical insurance fund, helping defray the cost of retiree health care.”

The state’s separate Road Fund achieved a surplus of $37.5 million.  The Road Fund surplus was entirely attributable to reductions in expenditures totaling $38.7 million.  Under Kentucky law, the entire Road Fund surplus will be used for state highway construction.

“From the outset, our priorities have been efficient management of government services and the growth of Kentucky’s economy,” stated Governor Fletcher. “In the first two fiscal years of my administration, our strategies have paid off with significant budget surpluses without tax increases.”