Sunderland: There is enough time for House, Senate to come to agreement
By Lorie Hailey
FRANKFORT, Ky. (Feb. 28, 2013) — The state’s largest business organization continues to be hopeful that Kentucky lawmakers will enact “meaningful” pension reform this legislative session, but prefers the Senate version of a bill to do so, said Bryan Sunderland, vice president of public affairs for the Kentucky Chamber of Commerce.
Kentucky Retirement Systems (KRS), which administers pension benefits to more than 325,000 current and former public employees, is underfunded by more than $30 billion. Rising pension costs mean less tax money for education and economic development, the Chamber has said.
The organization, which represents 2,700 businesses that employ over half of Kentucky’s workforce, has been seeking a fix to the state’s public pension problems since 2007. Back then, the rising costs of pension and the unfunded liability was “a train in the distance getting ready to crash,” Sunderland said. Now, Kentuckians are standing amid the wreckage.
“The defined-benefit pension is an unaffordable option, that’s why the private sector has gotten away from it,” he said.
With pension reform its top priority for 2013, the Chamber endorsed Senate Bill 2, sponsored by sponsored by Sen. Damon Thayer, R-Georgetown. The legislation mirrors the recommendations of the bipartisan Task Force on Kentucky Public Pensions, which last year reviewed Kentucky Retirement Systems (KRS).
SB 2, as passed by the Senate, did a few basic things: it created a hybrid shared-risk plan for new government hires; required the state to begin paying its full contribution beginning next fiscal year; prohibited public employees from being re-employed with the state for up to two years after retirement; and repealed the annual cost-of-living adjustments (COLA) provided to retirees.
Fully funding the pension plan would mean lawmakers would need to find about $250 million a year in additional funds for the retirement system.
The terms of SB 2 were “negotiated in a very non-partisan way,” Sunderland said, “and the Senate vote was 33 to 5, overwhelmingly bipartisan.”
The Chamber encouraged lawmakers to pass the bill “without watering down the recommendations” of the task force.
On Wednesday, the House seemed to have a water pitcher in hand when it passed its amended version of SB 2.
The amendments, which passed 52-47, allows future workers to remain in the current pension system instead of switching to the hybrid cash balance plan. The House plan allows a 1.5 percent COLA surplus funds are available and authorized by the General Assembly.
The Chamber favors the hybrid shared-risk plan for new hires, Sunderland said. The current system puts all of the risk on the taxpayer, he said.
The House’s amendments also address “spiking”— in which an employee receives a bonus or “career advancement” to boost their pension as they near retirement — by allowing the pension systems to determine whether increased cost is from a bona fide promotion or a career advancement, and sets up an 11-member statutory oversight panel to give the General Assembly oversight on pension benefits, investments, funding, law and other pension areas.
Rep. Brent Yonts, D-Greenville, who chairs the House State Government Committee, said earlier this week that the amended version of SB 2 represents an effort “to do as much as we can within this bill to ensure that the ARC (actuarial required contribution) is funded. The General Assembly has underfunded the contribution for 13 years by suspending the law, Yonts said.
Full funding of the ARC is estimated to cost around $100 million per year in state General Fund dollars, Yonts said.
The House passed a bill Wednesday sponsored by House Speaker Greg Stumbo that creates a funding mechanism to allow the state to collect an estimated $73.5 million by 2019 for a new state “pension sustainability trust fund.” The funding would potentially come from Club Keno and iLottery games that are expected to be offered by the Kentucky Lottery and a portion of the proceeds from instant or “historic” racing now offered at Kentucky Downs and Ellis Park.
“After these endeavors mature, in about six to eight years, it pretty well takes care of itself from there on out,” Stumbo said.
The Chamber has not weighed in on the funding mechanism for SB 2. Funding the pension contribution is a public policy decision that lawmakers need to make, Sunderland said. Right now, the focus should be on getting the bill passed, he said.
The organization would like to see some of the provisions of the original bill reinstated.
“We need to make sure we’ll get to a sustainable system,” he said. “Bond rating agencies need to know that we have a sustainable system.”
The state’s bond rating has been downgraded twice by major rating agencies because of unfunded pension liabilities, meaning it will cost taxpayers more to finance public projects. Most recently, Standard & Poor’s lowered Kentucky’s overall financial health to 47th best in the country.
Taxpayers would be much more comfortable with comprehensive tax reform, Sunderland said, if they knew the state would be able to use the money to repair roads, fund education and attract new businesses to the commonwealth, not pour money into an unsustainable, outdated system. And more businesses would consider locating in Kentucky if it updated its tax laws.
“The pension problem is a wet blanket on job creation,” Sunderland said.
While the plans in each chamber are strikingly different, the good news is that the pension reform bill has passed both houses, and there are 10 days left in the General Assembly session, plenty of time for lawmakers to come to an agreement, Sunderland said.
“I’m confident that pension reform will be passed this session,” he said. “It will take leadership and political will. The longer we wait, the less money we have for roads, education and putting books in classrooms. Those are the things people of Kentucky really care about.”