Governor prepared to call special session if agreement isn’t reached
By Lorie Hailey
FRANKFORT, Ky. (March 14, 2013) — Negotiations on a Kentucky pension reform plan continue, even though the General Assembly is on veto recess.
House and Senate leaders on Tuesday attempted to work out an agreement, but apparent attempts to rectify the differences between funding options for the pension reform plan were unsuccessful, said Bryan Sunderland, vice president of public affairs for the Kentucky Chamber of Commerce.
“The governor, speaker and senate president have all indicated that discussions will continue over the veto recess,” Sunderland said.
Although Gov. Steve Beshear has said he is prepared to call a special session to deal with pension reform, he said Tuesday that everyone involved hopes a consensus can be reached before the regular session ends March 26. (Legislators can still pass legislation on the legislative session’s last day or days.)
“We all want to avoid a special session if possible, but I think we’re all committed to resolving those issues,” Beshear said. “We continue to have discussions about both the issues of pension reform and about the funding that needs to be associated with that.”
Legislators are making progress, the governor said, but “it’s going to take time.”
Meetings that take place during the veto recess are not put on the schedule, Beshear said, because legislative leaders need to discuss the issues in an informal atmosphere, “where they can talk openly and honestly about these issues and what are options are and how we might be able to resolve them.”
House, Senate support different ideas
Early in the session, the Senate passed Senate Bill 2, which mirrored recommendations made by the bipartisan Task Force on Kentucky Public Pensions, which last year reviewed Kentucky Retirement Systems (KRS). The House amended the bill, removing some its major reform strategies. For example, the Senate plan called for the creation of a hybrid shared-risk plan for new government hires. But the House eliminated the plan, allowing future workers to remain in the current pension system instead of switching to the hybrid cash balance plan.
“Unfortunately, the House version passed on a party-line vote and removed the new pension structure for new employees that helps ensure the long-term sustainability,” the Kentucky Chamber of Commerce said Wednesday in its legislative update. “The House is insisting on enacting a new revenue stream as well.”
In addition to the hybrid shared-risk plan, SB 2, as passed by the Senate, 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.
The House’s amended version allows a 1.5 percent COLA surplus funds are available and authorized by the General Assembly. The plan also addresses “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.
Both chambers have varying ideas about how the government can fund pension reform. KRS is in the hole for more than $30 billion, and the state hasn’t fully funded it in several years.
In February, the House passed a bill 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.
Why pension reform is urgent
The state’s pension systems administer benefits to more than 325,000 current and former public employees.
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.
The funding gap for the retirement systems has grown by roughly $3 billion in the past year alone.
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 such as new schools.
A recent Pew Center on the States study describes Kentucky’s pension situation as “unsustainable” because of this liability and because KRS is paying out more than it is taking in.
“Skyrocketing pension costs mean less tax money for education and economic development – investments Kentucky should be making to ensure a strong future for our children, our communities and our state,” said the Kentucky Chamber of Commerce, which has made pension reform its No. 1 priority this year.
The organization continues to press legislators to pass SB 2 before the session adjourns in two weeks, after the veto recess. Chamber staff members have been stationed at the capitol during the legislative session to lobby for pension reform, as well other key business issues.
“Without pension reform, our state’s debt continues to rise, and the prospects of additional investment in our children’s education and infrastructure continues to decline,” the organization said.