House leaders want to complete a cost study of pension bill
By Scott Payton
Legislative Research Commission
Public Relations Dept.
FRANKFORT, Ky. (Feb. 22, 2013) — Thirteen days in a legislature – the working days left in this one – can seem short but be a lifetime. Especially for issues that have been on the table for months, if not years. Such issues can break suddenly, be passed, and signed into law by the governor. Follow Frankfort-in-session long enough, you’ll learn to live with being surprised.
That conceded, the two toughest challenges posed this session – pension reform and tax reform – are coming down to the final buzzer in March, looking for a couple of long three-pointers. Deeply vetted by special task forces in the months before the session convened, both are pretty clearly defined. Their issues, problems and points of contention are known. Both are heavily pressed gubernatorial priorities. But uncertainty still surrounds them as the scorer’s clock ticks down ever louder on the 30-day Constitutional limit to this year’s regular session.
Of the two, pension reform is a lot further along. While no bill on broad tax reform has even been discussed yet in committee, pension reform has passed one chamber and is under serious discussion by leaders in the other. A House committee took up the issue this week.
The devil, though, is in the details as always. Most especially in this case, funding.
Some background: There’s a claimed gap of as much as $30 billion between money available in the system and benefits promised to public employees in the state’s various plans, including plans for teachers, police and firefighters, county employees, and the separate Kentucky Employees Retirement System for other state workers. The plan for state workers alone – the Kentucky Employees Retirement System – is said to be $19 billion in the hole.
These are estimates. But however you slice it, it’s a lot of money.
The Senate early on this session passed a potentially landmark bill to revamp the scarily underfunded systems. It calls for the state to chip in its full annual funding contribution by 2015, an actuarial first shovel to start filling the hole we’re in, and creates what some are calling a ‘hybrid’ pension plan for future hires. This would be similar to the 401K plan that has replaced many if not most defined-benefit plans in the private sector nationwide, but with a safety net; it guarantees participants a 4-percent return on their contributions.
The Senate bill also repeals automatic annual cost-of-living adjustments for retirees, though the Legislature could authorize COLAs on a year-by-year basis if finances stabilize or improve and the need is felt.
But the bill includes no specified funding stream, something Senate leaders have said can best be dealt with in next year’s budget session after passing the new framework now and signaling clear intent to fund it when the next state spending plan is written.
One practical consideration virtually everyone acknowledges is, short sessions like this one require a three-fifths supermajority to pass any revenue bill. That restriction doesn’t apply to even-year budget sessions or (perhaps portentously) to special sessions called by the governor to deal with only specified topics.
The Senate proposal (SB 2) was brought before the House State Government Committee Thursday, though no vote was taken. While House leaders said they’d like to deal with this issue during the regular session – with a floor vote maybe next week — they want to complete a cost study of the bill and have their own draft proposal in good order before moving the measure along.
Regardless of when or if that happens — now or in an increasingly mentioned special session later — House leaders disagree with deferring the funding question. They say a mechanism must be in place before the Legislature can commit to full actuarial funding. Plus, the idea of a hybrid 401K-type plan to replace the current traditional plan has met some resistance in that chamber.
This week, House leaders were said to be reviewing as many as 16 options for raising the money. The latest indications are the House is considering revenues from proposed Internet keno, Instant Racing and — especially — a 6-percent sales tax on lottery tickets, coupled with an expansion of games offered. All this, of course, is unfolding and fluid.
Regardless, the pension-funding question ties in — at least in the ongoing discussion — with the session’s other ‘big’ issue, tax reform. That’s a subject whose prospects for full consideration (the package of 54 recommendations issued by the recent Blue Ribbon Commission on Tax Reform) look increasingly dim in the baker’s dozen days left till adjournment. And Senate leaders reiterated this week that pension funding should be considered separately from restructuring the system itself, in part because they say entangling the two and failing to reach agreement on structural changes now will just complicate any comprehensive tax-reform debate later.
Reach Scott Payton at [email protected]. The Kentucky Legislature Home Page, www.lrc.ky.gov, provides information on each of the commonwealth’s senators and representatives, including phone numbers, addressees and committee assignments. The site also provides bill texts, a bill-tracking service and committee meeting schedules.