The harsh reality of the Kentucky pension crisis and the abject dysfunction of state government was laid bare this week in Frankfort.
Here's what we know: the unfunded pension plan is $10s of billions in the hole. The governor's initial recommendations, which held a good chance of at least beginning to make a dent in this problem, have been uniformly rejected. And, it is now clear the Kentucky Legislature does not have the courage to take the incredibly painful steps to fix this problem because its members are more worried about being re-elected.
So, it's official. The can has been kicked.
The lack of leadership here is astonishing and will ultimately result in a world of pain for everyone involved when the pension system collapses under its own, unfunded weight. The public employees. The taxpayer. Local governments. The state of Kentucky -- they will all suffer. What the Legislature will accomplish, if this legislation does make it through, is simply delay the reckoning.
Let us briefly revisit the events of last year. Gov. Matt Bevin wanted to hold a special sesssion to fix this. Never happened. Other proposals from a consultant called for difficult steps ranging from freezing accrued benefits, conversion of new employees to a 401-k style defined contribution plan, and eliminating cost-of-living adjustments accrued from 1996 to 2012 to fix a staggering deficit. Not happening.
Instead, weeks-late legislation was quietly unveiled late on a Tuesday afternoon. It wasn't until the following day that the sponsors eventually had a press conference. CNHI Kentucky's Ronnie Ellis reports the proposed legislation does not force new employees into defined contribution or 401-K style plans. It would instead extend a 2013 change in the retirement system for state workers to newly hired teachers, moving them into what is called a hybrid-cash plan. The plan seeks to save $4.8 billion over 30 years during which time the state will make “level dollar” contributions to the systems and eventually eliminate the roughly $43 billion combined unfunded liability of the state’s various pension plans.
Teachers won’t be required to contribute 3 percent more of their salaries for health care for retired teachers (between time of retirement and age 65 when they become eligible for Medicare). Retired teachers would see their annual cost-of-living-adjustment shrink from 1.5 percent to 0.75 percent for 12 years. Legislators said costs of healthcare will be dealt with in the budget, but of course no specifics are offered.
Ellis reported a significant change is for all future hires they will not be covered by the so-called “inviolable contract,” guaranteeing their benefits in statute. Look for this to be watered down or eliminated as the legislation moves forward. And, instead of coming up with new revenues or more cuts, we are told local governments' increased contributions would be "phased in" and contributions wouldn’t grow by more than 10 percent each year at least through June 30, 2020.
Translation -- put your boots on. There's a can to be kicked.
All of this avoids true solutions. We've said it before -- the state has to meet its promises to its employees while forever fixing a public compensation program that is not sustainable. The old way of compensating public employees does not work. This, in turn, requires new funding sources, drastic cuts, a dramatic new approach to compensation, or a combination of both.
None of those potential solutions are present here.
The state needs to think outside of the box. Allow casinos in to fund pensions? Let's debate it. Legalize marijuana and tax it to raise the money to fix this quagmire? Let's debate it.
Instead we stick our heads in the sand. When the plan collapses, remember the Legislature and governor's failure of leadership in 2018, and remember the unwillingness of anyone to do anything but look out for themselves.