Kentucky Lawmakers Propose Casinos to Fix Ailing Pension

A group of Kentucky lawmakers has proposed allowing casinos to open in the state so it can use gambling tax revenue and license fees to support its ailing pension systems.

House Bill 229 proposes to amend Section 226 of the Constitution of Kentucky relating to gambling so that “the General Assembly may establish a Kentucky state lottery and may establish a state lottery to be conducted in cooperation with other states.”

According to the bill, prior to the fiscal year beginning July 1, 2038, 100% of the proceeds generated from licensing fees, and taxation of casinos and casino gaming in excess of the amount required, will be allocated to the Kentucky Employees Retirement System (KERS) nonhazardous pension fund, the Kentucky Employees Retirement System (KERS) hazardous pension fund, and the Kentucky Teachers’ Retirement System (KTRS) pension fund. The state’s general assembly would determine how much each pension fund would receive based on the needs of the respective funds at that time.

The fate of the proposed amendment would be decided on by Kentucky voters, who would be asked to answer the question: “Are you in favor of amending the Kentucky Constitution to allow the General Assembly to permit casino gaming if the proceeds are allocated to the public pension system for a 20-year period?”

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This is not the first time state lawmakers have proposed allowing casinos and gambling in order to replenish Kentucky’s struggling retirement system. In 2015, then-Kentucky House Speaker Greg Stumbo pledged to propose a constitutional amendment to allow as many as seven casinos to open in Kentucky. Under his plan, tax revenue from casinos would be used to fund public schools, the state’s racing industry, and its pension systems.

State legislators tried again in 2016, with a bill proposed by two Louisville state senators. Under that proposal, 90% of revenue from the expansion of casino gambling would go to the pension funds for state workers and teachers.

“This gives the people of Kentucky the choice whether they want to collect the carloads of cash that are going across our bridges on a daily basis and paying for roads, bridges, and schools in Indiana and Ohio,” Kentucky Sen. Morgan McGarvey, referring to the border states where casinos have been legalized, told WKU Public Radio.

According to a 2015 report from the Kentucky Center for Investigative Reporting, Kentucky residents are major contributors to the billions of dollars raised by gambling that is going into Illinois, Indiana, and Ohio state coffers.

Tags: Casinos, Kentucky, Pension

The market bloodshed that spilled into this week, with a 2.6% loss for the Standard & Poor’s 500, should subside due to a number of market forces that will counteract the bad news—fear of escalating interest rates.

That’s the view from UBS Securities’ strategists, who figure the current market drop should be around 5%. When economic data is so positive, falls tend to be shallow, they wrote in a report. In their view, “When economic data surprises have been positive, equity pullbacks have averaged 5%, suggesting last week’s 4% sell-off is close to an end.” When economic data is discouraging, they added, a dip is more like 9%.

Some of the evidence that buoys them:

Valuation adjustment. Many have lamented that the market was getting over-priced, as seen by the price/earnings multiple. The drop in market prices, plus expected earnings expansion from the federal tax cuts, have lowered the S&P 500’s forward P/E to 17.6, from its 18.5 peak in January.

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Dividends, buybacks and M&A. Expected higher earnings will bear fruit with a torrent of dividend income channeled to investors—and the UBS strategists put that at $60 billion going into their accounts near-term. Better, that begins this week. Thanks to corporate cash brought back from overseas, courtesy of the tax law change, buybacks of stocks should hit a record of $550 billion in 2018, they estimated. In addition, mergers are picking up the pace lately. These all put upward pressure on stock prices.

Bond spreads. The gaps between corporate bonds and risk-free Treasuries remains tight, signaling that investors see no cause for alarm. If they did, the spreads would be wider. Right now, investment grade paper’s spread is around 1 percentage point (it was 2 in 2016). High-yield bonds have just a 3-point spread (down from almost 8 two years ago).

Single-stock trading volume. This is the turf of small investors, who typically get spooked the most. Their trading during this sell-off is muted compared to during previous market scares, such as the mid-2016 Brexit vote. So “this suggests a firmer mindset among equity investors,” UBS wrote.

Fear gauge. The volatility index, or VIX (also known as the fear gauge), is up lately from its previous single-digit level, which showed how placid the market has been as it soared. When the VIX spikes, that betokens trouble. But the index has risen to just 17, which is short of its average, 19.

Thus, UBS contended, much of the hand-wringing about the market is unwarranted.

Tags: bond spreads, dividends, fear gauge, S&P 500