FRANKFORT -- Kentucky state officials are expecting to see a strong revenue surplus when the state's fiscal year ends at midnight Sunday -- a one-time windfall likely to benefit the Teachers' Retirement System.

But even a big surplus of perhaps $150 million or more would have a negligible impact on the state's long-term financial problems.

"The economy in Kentucky has been strong ... and it appears we're looking at a surplus that will be fairly healthy," said Sen. Chris McDaniel, a Taylor Mill Republican who chairs the Senate budget committee. "It's good news in the short term, but we still have long term costs on the pension front that will be crushing. It takes a long, sustained period of growth to deal with that."

Kentucky's current budget calls for general revenues to grow by 3.3% this fiscal year over the revenues of 2017-18 and hit a total of nearly $11.2 billion.

State Budget Director John Chilton recently reported that through the first 11 months of the year revenues had grown at a much more robust pace -- 6% . "The growth in tax revenues has put the General Fund in excellent position" to generate a surplus, Chilton said.

Chilton did not suggest how large the surplus might be. On Thursday he said he could not elaborate until after the fiscal year ends. He said his office expects to report the final revenue numbers for the year on July 10.

But even if revenue growth in the final month of the fiscal year is weak, the surplus amount would reach $150 million.

So what would be done with that surplus money?

The state budget bill spells out how the surplus money must be used, and the first use of that money is for something called "necessary government expenses."

These are costs that lawmakers expect the state is likely to incur but are simply not funded in the budget. They include costs the state incurs for responding to disasters or emergencies and also costs to make-up for not providing enough money in the budget for the soaring costs to operate state prisons and local jails.

Last year about $80 million were taken from a state surplus of nearly $120 million to cover these necessary government expenses.

"This year that amount will not be as high," McDaniel said. "We wrote the budget in a way to reduce the amount of these unfunded costs."

McDaniel said this amount would be more in the neighborhood of $40 million or $50 million, but he stressed he has not heard any recent estimate of the amount from Chilton's office.

And the budget's surplus expenditure plan says these necessary government expenses include the costs of any "emergency orders formally declared by the Governor."

Barring any such order in the next three days, the surplus may well be large enough to cover the necessary government expenses and then the second item in the budget's surplus spending plan -- $70 million to the Teachers' Retirement System's Medical Insurance Fund.

This would mean the state budget would fully fund an expense lawmakers struggled to find the money for during the 2018 budget debate -- health insurance for a segment of retired teachers -- those who retired after June 30, 2010, but are under age 65.

The 2018-20 budget originally proposed by Bevin provided no money for this purpose, but the General Assembly answered the cries of the affected retired teachers who were facing thousands of dollars in annual health care costs.

Lawmakers put funding in the budget for this insurance in 2018-19, and for the 2019-20 fiscal year they simply ordered that the Teachers' Retirement System use money from its medical insurance fund to pay for this insurance.

But lawmakers then added the provision to the budget bill that makes this item a top priority in the surplus spending plan.

Beau Barnes, deputy executive secretary of operations and general counsel for Teachers' Retirement System, was cautious in his comments when asked if he expected that surplus funds will now cover all, or much of, that $70 million cost.

"We are very appreciative this provision was included in the budget, but the fiscal year isn't over yet. We haven't heard from the budget office, but we're hopeful," Barnes said.

Barnes said when the budget was approved in 2018 that the system's medical insurance fund could sustain the $70 million cost for one year. That fund currently has about $1.2 billion in assets.

But he said it would be a jolt to an effort began in 2010, when that fund was only 4% funded, to eventually bring it to 100% funding.

"Last June 30 that fund was 36.3% funded and growing," Barnes said. Getting the $70 million from the surplus, or a large part of the $70 million, would keep the fund on a path toward 100% funding.

The budget says any surplus revenues beyond what's needed for the necessary government expenses, and the $70 million for the Teachers' Retirement System would go to the state pension plan that covers most state workers.

But if there are a few million surplus dollars left for that, it would not have a big effect because that pension plan is the worst-funded of Kentucky's pension plan -- and the worst-funded public pension plan in America -- with $13.6 billion in unfunded liabilities.

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