Daily Independent (Ashland, KY)

January 7, 2013

‘Now is time’ to reform pension system

By RONNIE ELLIS
CNHI News Service

FRANKFORT — It’s past time Kentucky confronted its own fiscal cliff represented by more than $33 billion in unfunded liabilities in its pension system, local leaders said Monday.

The message from mayors of Lexington and Louisville, the president of the statewide association of county governments and the director of the Kentucky League of Cities Monday, one day before lawmakers convene the 2013 General Assembly, was that growing pension costs are destroying their budgets and placing the state in fiscal peril.

Lawmakers face recommendations from a legislative task force on the pension system to fully fund the system on an annual basis, end cost of living adjustments, tax retirees’ benefits, and place new hires into a hybrid cash-balance plan which would share investment risks among employees and taxpayers.

The biggest item is to come up with an extra $327 million next year to fully fund the actuarially required contribution or ARC, an amount which would likely grow in the next couple of two-year budgets after that.

But the local officials said “now is the time” to confront the problem before it becomes unmanageable.

“If there were ever a going-out-business model, this is it,” said Lexington Mayor Jim Gray. “This is an urgent, urgent, urgent problem. Every year it gets more serious.”

Gray, his Louisville counterpart Greg Fischer, LaRue County Judge-Executive Tommy Turner who is president of the Kentucky Association of Counties, and Jonathan Steiner, Executive Director of the Kentucky League of Cities, said the growing pension costs for local governments are squeezing out funding for firemen, police and other crucial government services.

Turner said it’s time political leaders summon the political courage and will to attack a problem that is threatening “the beating heart of this commonwealth, it’s financial well-being.”

House Speaker Greg Stumbo, D-Prestonsburg, and Democratic Gov. Steve Beshear have said they agree the problem must be addressed but each also has added a caveat: “Where does the money come from?”

Beshear has said he does not want to pull funding from other priorities like education and public protection in order to bolster the retirement funds.

One way the governor would like to find the additional money is through tax reform. A commission he appointed recommended a number of changes which would produce about $620 billion of new revenue. But lawmakers are reluctant to take on the controversial issue.

Stumbo has said he sees no “groundswell” of interest in tackling the problem while presumptive Senate president Robert Stivers, R-Manchester, has said the state doesn’t “have a revenue problem; we’ve got a spending problem.”

At the same time, state employees and retirees oppose recommendations to tax their benefits or to put new employees into the hybrid cash-balance plan.

Only one lawmaker — Republican Sen. Dan Seum of Louisville, the Republican Caucus Chairman in the Senate — attended Monday’s press briefing from the local officials.

Asked if he thought lawmakers were prepared to take on the funding implications of the recommendations, Seum said Sen. Damon Thayer, R-Georgetown, the new Majority Leader and one of the co-chairs of the task force which made the recommendations is preparing to “file legislation based on the final report of the task force.”

Seum was hesitant to say Senate Republicans will support the full funding recommendation. But he said there is “sentiment within leadership” to deal with the problem.

Fischer and Gray said the percentage of their cities’ budgets which must be devoted to paying pension costs has risen dramatically in recent years and will only grow without action by lawmakers. Cities and counties are part of the system but unlike the state have made full contributions to their county employee retirement systems.

And Gray cautioned against issuing bonds to pay down pension costs of the state. The city of Lexington actually manages a separate pension system for its police and fire fighters and issued bonds to get on top of its unfunded liability. But because of the recession and stock market losses, the city’s funding liability went from $256 million to $300 million in four years.

Because of rising pension costs, Steiner said some cities pay more for benefits and pension costs for new employees than it pays in salary for that employee, “creating a ghost employee.”

He said KLC‘s number one legislative priority is pension reform and it supports the recommendations of the task force.

RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.