When you find out you're in a hole, the best thing to do is quit digging.
The problem is, when you find out you're in a hole - you're in a hole - and there's no easy way out.
And that's where we've found ourselves as a state. We're facing some significant financial holes that have far-reaching and long-term impacts on everything we do.
When it comes to funding our transportation infrastructure, we're fully aware of our financial holes. Our state faces funding shortfalls that have left us with a billion dollar backlog in resurfacing, 70 closed bridges, $50 million in deferred maintenance at our General Aviation airports, hundreds of millions in needs at our public riverports, hundreds of rail crossings that require significant improvements, and a transit system that faces a financial cliff in 2020.
There are lots of holes to fix.
And unfortunately one of the most common ways to access funds quickly - bonding - isn't currently a fiscally sound option due to another huge hole our state is facing - our ailing pension system.
Earlier this year S&P Global Ratings downgraded Kentucky's road fund bonds from stable to negative. This may not sound like it matters, but it does.
When our road fund bonds and the state's other bond ratings are downgraded, it impacts the interest rate we pay when we try to refinance any existing bonds (we currently have nearly $3 billion in bonded debt for road projects) and on any money we try to borrow for new projects.
Our bond rating is like a credit rating for states.
If our bond rating gets worse over time, it means it costs more and more for us to borrow money for projects.
Think of it in terms of a mortgage.
If you have great credit and want to buy a new $250,000 home with a 30-year mortgage, you could quality for a low 3.74% interest rate on your loan. With no down payment, your monthly payment would be $1,157 per month for the next 30 years.
If your credit was less than average, and your interest rate on a 30-year loan was 4.74%, your monthly payment would increase by nearly $200 per month (taking money out of your pocket) and you would pay nearly $50,000 more for that same home over the life of the loan.
To put it in perspective - these home loans are for $250,000. Most transportation projects cost significantly more than the average home and any bonds issued would be in the millions to hundreds of millions of dollars. That means the interest on these large loans is higher throughout the life of the 10 -18 year bond.
If our interest is higher and our bond payments are higher, we have to spend more of our road fund revenues on bond payments. That means it isn't available to implement new projects that we need today.
We are in a tough spot as a state. We've got to encourage our elected leadership to make difficult decisions to move our state forward. Doing nothing isn't an option.
We have to find a way to fix our financial holes before we dig our own grave.