Beech Tree News Network

FRANKFORT – After trading blame with Gov. Matt Bevin over the failed pension reform special session just before Christmas, legislative leaders were ready to buckle down.

They were ready to address Kentucky’s pension crisis in the regular legislative session that opened in January.

They created the Public Pensions Working Group, made up of 14 lawmakers, directing it to study the state’s pension plans and make reform recommendations as early as Feb. 15.

But when what was to be the "pension session" all but ended Thursday night, one issue was glaringly missing from the list of completed bills. 

As it turned out, lawmakers took no action to reduce the nearly $43 billion in unfunded liabilities within the state’s eight public retirement plans.

One pension-related bill did move, but lawmakers are still deadlocked on it. It would give relief to quasi-governmental groups, including local health departments, who argue they might have to close their doors if forced to pay higher pension costs to the state starting July 1.

Meanwhile, critics warn that bills that did pass this session will actually impair the state's ability to fund pensions in the next budget.

Those actions include approving a basket of tax breaks that will cost the state about $105 million in annual revenue, borrowing $75 million to repair state parks, and promising to spend millions of dollars beginning next year on school safety.

Of the pension issue, House Speaker David Osborne, R-Prospect, said Thursday night: "It’s an incredibly difficult issue that we’ve been wrestling with for a long time … It was very, very difficult to get to where we were last year. And when that didn’t ultimately end in resolution, it opened up the entire conversation again.”

Lawmakers will now reconvene for the session's final day on March 28, when they hope to arrive at an agreement on how to help the health departments, mental health centers, regional state universities and other entities begging for pension relief.

As for the overall structural reform of pension benefits — perhaps something similar to last year's bill that passed into law but was struck down by the courts for procedural reasons — Bevin would have to call lawmakers back for a special session.

Otherwise, it will have to wait until next year's regular session.

The governor's office has not replied to several emails in the past week seeking comment about the current session's lack of action on comprehensive pension reform.

Since his blistering criticism of legislative leaders after the failed special session, the governor has toned down his rhetoric. He still repeats his warning of a dire outlook for the pension plans when asked. But he repeatedly emphasizes that only the legislature can change pension law.

He breezed over the issue in his upbeat State of the Commonwealth Address in February, instead highlighting past efforts with the Republican majorities in the General Assembly to pass an agenda of conservative priorities.

Osborne and other leaders said Thursday night that the working group has been productive in informing lawmakers and the public on details of the pension crisis, and has helped bring lawmakers closer to some solution.

“I think a lot of people got a much better understanding of the issues. And there was considerable movement toward the middle on those issues,” Osborne said.

“The pension working group served its purpose of reminding the public how bad our pension systems’ solvency situation is,” Senate Majority Leader Damon Thayer, R-Georgetown, said.

The focus for future pension reform, Thayer said, should be the Teachers’ Retirement System, which he noted was not addressed when lawmakers last passed a major pension bill in 2013. That bill applied to benefits of state and local government workers.

The teachers' system was the focus of last year's bill, the main provision of which would have put future teachers into “cash balance” retirement plan similar to a 401(k).

The Kentucky Supreme Court struck that law down in a 7-0 ruling because of the rapid process used to pass the bill — not because of the content of the bill. The high court’s ruling is what triggered Bevin’s call for the December special session.

In mid-session this year, freshman Rep. Scott Lewis, a Republican from Ohio County and the former superintendent for Ohio County Schools, drew attention on the issue when he filed a pension reform bill affecting teachers.

Lewis' bill required future teachers to work until at least age 55 before getting full benefits. (They can now retire after 27 years, regardless of age.) The bill would have slightly trimmed benefits of future teachers by lowering a multiplier used to determine benefits, but kept them in a traditional defined-benefit plan.

Teachers’ unions offered no objection, but Lewis’ bill saved little money and got so little support that it did not even get a vote in committee.

Osborne and Senate President Robert Stivers, R-Manchester, said Thursday night they have no idea how inclined Bevin may be to call another special session this year. But both strongly advised that no session be called until some agreement among lawmakers is first reached on a bill that could be quickly passed in that session.

Relief for health departments, universities on hold

As for the issue of “quasi-governmental” agencies and regional state universities, the House and Senate passed different bills to give them a break on the huge pensions hike coming July 1.

Both would have at least allowed these entities another year before seeing their required pension contribution soar from 48 percent to 83 percent of their payrolls. Both would have provided regional universities a way to pay off their liabilities and exit the Kentucky Retirement Systems.

But the Senate version also provided an exit path for the health departments and other quasi-governmental groups, and other important details within the House and Senate bills are different.

Despite negotiations all day Thursday, a compromise was not reached. This remains a key bill that the two chambers hope to reach agreement on and pass when they convene March 28.

Top leaders are hopeful some agreement can be reached.

Stivers said, “Everybody will take a deep breath … We’ll get together probably next week and see what path forward we want to take.”

But Jim Carroll, president of the advocacy group Kentucky Government Retirees, said it is good that the bill helping these groups did not pass because it will reduce the flow of expected — and desperately needed — contributions to the worst-funded of Kentucky’s pension plans.

“To allow these groups out without paying their full unfunded liabilities up front, shifts hundreds of millions of dollars to everyone left in the plan,” Carroll said.

He said state government, which is currently paying the higher contribution rate of 83 percent of payroll into the pension plan, would see its contribution rate climb to at least 92 or 93 percent if the bill passes.

That equates to paying 92 or 93 cents of pension costs for every $1 dollar of salary paid to an employee.

A year from now, when lawmakers would have to address that issue while writing the next state budget, "it's going to be a bloodbath,” Carroll said.

He said the solution to giving relief to the quasi-governmental groups is to do the opposite of what happened in this session – raise taxes or other forms of revenue that will cover the cost of the move.

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Date: 03-18-2019

By Tom Loftus
Louisville Courier Journal

Kentucky Press News Service