AQUILA GROUP OF FUNDS®

Update on theKentucky Economy

Dr. James R. Ramsey

April 26, 2012

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Honored to serve as a Trustee of theChurchill Tax-Free Fund of Kentucky

since its inception in 1987

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In 2010 we were coming out of a recesssion, so we thought 2011

would be betterYet…

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2011 (Did Not Go According to Plan)

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• “Black Swans” of 2011

– Earthquakes/floods

– Fukushima Daiichi Plant

– European implosion

– US downgrade

– Gadhafi, Mubarak & Berlusconi gone

So…

•Economy did not grow as expected

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We Know That Nationally Times Have Been Unprecedented

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Very slow recovery2011

3.0% 1.7%

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In Kentucky, things were not gangbusters, but

was better in 2011 than 2010

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AQUILA GROUP OF FUNDS® Kentucky Non-Agriculture

Employment February 2012(employment in thousands)

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Notes – 1 – Most people employed since December 20082 – 2011 added 20,000 jobs3 – 2012 off to great start (17,000)4 – Still 51,000 fewer people working today

51,000 job loss

AQUILA GROUP OF FUNDS® Kentucky Manufacturing

Employment February 2012(employment in thousands)

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• Economy• Productivity gains• Offshore

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Manufacturing Employment Declines

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2000 2012

17.1% 11.8%

% of Manufacturing Jobs in Kentucky

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Kentucky Employment February 2012(employment in thousands)

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Manufacturing

Education & Health

Services

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• Recessionary impact not as bad in Kentucky as some other states

• We hit bottom and are coming back (albeit slowly)• Have regained a little over half of the jobs lost during

recession– Where will future jobs come from?

• Healthcare• Logistics• Advanced manufacturing • Business Services• Energy

• Impact on state budget – state services– Improving revenue growth- modest– But structural imbalance: spending growth > revenue

growth

Observation’s on Kentucky’s Economy April 2012

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Rather Than Investing In Higher Education

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FY 07-12

Medicaid 32.1%

Health Insurance

Schools 33.1%

State Government 14.6%

KTRS 40.9%

KERS 75.0%

Debt Service 14.5%

Corrections 13.0%

Student Financial Aid 14.6%

“Higher Ed” -11.0%

%

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• Nice (not great) recovery continues in Kentucky

• We will continue to add jobs, but … probably late 2013 before we return to job level of late 2007, still…

• Jobs of the future different than jobs of the past

• Continue to face difficult public policy choices that impact our long term future

Forecasting / Guessing The Future

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AQUILA GROUP OF FUNDS®

Since forecasting is a tough business.

I am going to keep my day job at least one more year.

Reminder

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