Governor says he’s prepared to call special session to deal with pension reform

Senate, House disagree about how to dig out of $30 billion hole

This Week in Frankfort

By LRC Public Relations

FRANKFORT, Ky. (March 1, 2013) – So this week, the House weighed in on the weightiest of this session’s issues: Public-employee pension reform. And the increasingly shallow waters of a session nearing shore were roiled, with only eight working days to landfall, final adjournment near, and a governor in the wings who’s said he’s prepared to call a special session on the issue if need be.

RELATED: Chamber wants some provisions removed by House back in pension reform bill

RELATED: House approves pension reform bill and funding measure

Senate President Robert Stivers, R-Manchester, speaks on a state employee pension reform bill in the Kentucky Senate. (Photo courtesy of Legislative Research Commission Public Relations)
Senate President Robert Stivers, R-Manchester, speaks on a state employee pension reform bill in the Kentucky Senate. (Photo courtesy of Legislative Research Commission Public Relations)

As passed in committee Tuesday and clearing the House narrowly 55-45 the next day, Senate Bill 2 – the comprehensive pension reform bill passed by that chamber in early February – takes a fundamentally different tack than the Senate original, in the committee substitute sent to the House floor.

Most strikingly, it keeps a version of the pension systems’ current defined-benefits plan for new hires, albeit with increased flexibility for the Legislature to make future adjustments. The original Senate bill replaced the current plan with a hybrid ‘shared-risk’ approach for future employees, resembling a 401(K) but with a guaranteed 4 percent return. (This was also the recommendation of a task force that spent last year looking at fixes for Kentucky’s pension dilemma).

Therein lies one rub. And herein lies another:

A separate but companion bill (HB 416) provides a funding mechanism for the retirement systems – something the Senate did not do, saying that discussion should best be deferred until next year’s full budget session. House leaders have staked out a position that funding must be linked with structural reforms. Their bill passed with 52 votes.

In a nutshell: As amended by the House, the public pension reform bill, Senate Bill 2, would help ensure that state or local government employers each year pay the actuarial required contribution (ARC) to the public pension systems administered by the KRS. That’s usually referred to as ‘full funding,’ and the Senate also called for it.

Full funding is estimated to run around $100 million per year in General Fund dollars, House leaders say. Part of the reason the various public-pension funds are financially strapped is, full funding has not been forthcoming in recent years of severe General Fund budget distress. Coupled with a bad return on investments in recent recessionary years of a shaky stock market and low interest rates, the systems are said to face an overall unfunded liability of around $30 billion.

Sen. Morgan McGarvey, D-Louisville (right), confers with Sen. Chris Girdler, R-Somerset, during a recess period in the Kentucky Senate. (Photo courtesy of Legislative Research Commission)
Sen. Morgan McGarvey, D-Louisville (right), confers with Sen. Chris Girdler, R-Somerset, during a recess period in the Kentucky Senate. (Photo courtesy of Legislative Research Commission)

The House version requires legislative pre-funding of any cost-of-living raises for retirees, and allows the state to modify benefits and pension eligibility for future employees hired on or after July 1, 2013 – something the current ‘inviolable contract’ for those already in the system forbids

The General Fund dollars to pay for full funding would come mostly from the revenue mechanism in HB 416, which envisions the state collecting an estimated $73.5 million by 2019 (and more in subsequent years) for a new state Pension Sustainability Trust Fund to be created in fiscal year 2014. The funding stream would flow from expanding the Kentucky Lottery to include Club Keno and iLottery games, and a portion of the proceeds from expanded Instant Racing – betting on previously-run horse races –something now offered at Kentucky Downs and Ellis Park.

House leaders concede these sources will require some time to “mature” (six to eight years was a time frame mentioned) but should, they say, be self-sustaining after that. They say their plan protects state funding of the Kentucky Educational Excellence Scholarship (KEES) program, which is funded by lottery proceeds and one of the gravest concerns raised about hitching lottery money to pensions. Some skeptics also question the lottery’s Constitutional charter to expand into these new types of gaming.

The chambers’ core divide on structural reform (a hybrid plan vs. a continued but more-flexible defined-benefits plan for future hires) creates roadblocks enough on its own. But even beyond that, the chambers disagree on whether there’s a compelling need to pass a funding mechanism this year.

Senate leaders said after the funding bill’s passage they couldn’t receive it for consideration because it didn’t get the required 60-vote supermajority to pass a revenue bill in odd-year sessions. House leaders contend that restriction only applies to the final vote for final passage of an agreed-upon bill passed by both chambers, not the work-in-progress this bill, they say, still is. The Senate didn’t take the bill

It did take the revised SB 2, however, and on a voice vote Thursday refused to agree to (‘concur with’) the amended House version, and sent it back to that chamber asking it to ‘recede,’ meaning drop its changes to the bill. The House, in turn, declined to accept the bill back, on procedural grounds. The process, Friday, stalled.

At this point, we only know one thing for sure: A structural pension reform bill has passed both chambers and is ready for possible conference committee negotiations, if both chambers agree to appoint one. And with eight days left, there’s still time for this session to find agreement on that portion of the overall pension issue — time, but not much. Especially with the chambers’ positions, for now at least, so far apart.

Quick takes on four other issues of note:

♦ The Senate unanimously approved Senate Bill 7, a measure that would affect the Legislative Retirement Plan. The bill would make state lawmakers’ pension benefits from that system calculated only on salary earned through actual legislative service. Under current law, legislative pension benefits may also include salary earned in other government positions outside the legislature, creating the potential for individuals to inflate their benefit.

The bill would apply to lawmakers entering the plan after July 1 of this year. But it includes a provision that would allow former and current legislators the option of having their legislative pension benefits calculated the same way.

♦ Senate Bill 55 passed that chamber, proposing to amend the state’s Constitution to move the election of the governor and other state constitutional officers to even-numbered years, when elections for federal officials (and state legislators) are held. Currently those statewide-office elections take place in odd-numbered years, adding to ‘election clutter’ and cost. If the bill passes the House, the question will be posed to voters in the 2014 General Election for final ratification.

♦ Several ‘unintended consequences’ of last session’s pill mill bill were also addressed this week, with House passage of HB 217 and quick Senate committee approval the next day.

♦ Approved unanimously in both the House and the Senate Judiciary Committee, the bill would relieve some regulatory burdens of the controlled-substance reporting requirements on providers and patients. Mandatory reporting to KASPER (the Kentucky All-Schedule Prescription Electronic Reporting system) would be lifted for hospitals and long-term care facilities, which typically provide “unit” dosing at set times. Exemptions would also be made for post-surgery patients, end-of-life patients, and some specified other patients with a clear medical need for increased pain management. The bill now goes to the full Senate.

♦ A house committee discussed but took no vote on SB 50, which would allow (pending federal approval) cultivation of industrial help as an alternative cash crop in Kentucky. It was unclear whether the committee would call the bill for a vote before session’s end, whether it would pass, or what its prospects would be in the full House if it did, though supporters hold out hope.

The Legislative Research Commission is a 16-member panel that consists of the Democratic and Republican leaders from the House of Representatives and the Senate. It is administered by a full-time director who presides over a highly-trained staff of researchers, fiscal analysts, attorneys, computer operators, librarians, secretaries and others who provide expert services to the legislators.

 

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