FRANKFORT — Those waiting for a preview of any proposed public pension system reform coming in the 2018 General assembly are still waiting after Monday’s meeting of the Public Pension Oversight Board.
The panel got an actuarial update from legislative staff on the current unfunded liabilities of the multiple systems and how those systems came to be the worst funded in the nation.
At one point, Rep. James Kay, D-Versailles, asked if any member of the board — which includes members of the Republican majority House and Senate — could share information on the status of a proposal which the House and Senate leaders have been trying to hammer out.
No one could — or would.
The staff presentation showed the pension systems are collectively going to need around $1 billion more in the next two-year budget, on top of a similar appropriation in the current budget.
They also laid out charts and timelines which showed the systems were in good shape — some even had surpluses — around 2000, but governors and lawmakers then began shorting the necessary amounts to keep the systems fully funded as they struggled to make ends meet in tight budgets.
Things got worse during the years of the “Great Recession” of 2008 and 2009, and this past year, the trustees of the system adopted more realistic employment and investment return assumptions which further increased the unfunded liabilities from about $38 billion to $43 billion.
In 2000, the Kentucky Employees Retirement System had a $1.9 billion surplus and it had enough assets to cover 140 percent of its liabilities. But that’s when lawmakers — at the request of multiple governors — began to make less than the required annual contributions. By 2004, the surplus was gone. By 2017, KERS was only 13.5 percent funded and had unfunded liabilities of $13.5 billion.
Retirement systems for teachers and local officials are in better shape but they, too, have seen their financial strength eroded over time by underfunding, poor investment returns and unrealistic payroll and investment return assumptions.
Gov. Matt Bevin wanted lawmakers to pass a pension reform bill in a special session in 2017, but with only days remaining in the year and no agreement yet on a reform bill, lawmakers now hope to pass something in the first two weeks of the regular session which convenes on Jan. 2.
If they don’t, said Sen. Joe Bowen, R-Owensboro, a co-chair of the pension oversight panel, it might be difficult to pass any sort of reform.
“I’m of the school of thought that if we don’t get this done the first two weeks of the session, the potential for any type of reform begins to diminish exponentially,” Bowen said.
Bowen conceded that without new state revenues, the pension crisis will require cuts to other programs — including perhaps public schools — in order to fund the pension systems.
Bevin at one time considered asking lawmakers to tackle pension and tax reform which would produce more money at the same time, but lawmakers argued the two issues should be addressed separately.
First, some said, they needed to know how much money they would need for pensions before revising the tax code to produce more money. Secondly, both tasks are complex and politically difficult and it would be easier to take them up one at a time.
Sen. Jimmy Higdon, R-Lebanon, also a member of the PPOB, said he still thinks that’s the right approach.
“I can tell you that after the process I’ve been through on pensions, we do not have the bandwidth to tackle both at the same time,” Higdon said after Monday’s meeting. “How do you justify if there’s a need for additional revenue by not knowing what you need.”
Bowen agrees. But both men conceded lawmakers are facing a potential $1 billion hole in the next budget and they acknowledged that they’ll have to pass a budget by April 15 — with or without pension reform and with our without tax reform.
“I think the potential for draconian cuts is far greater than without the reform than if we do reform because there will be savings identified in the reform,” Bowen said.
But pressed, he acknowledged the state faces more spending needs than it has revenue and SEEK may be affected. Tax reform is needed but pension reform must come first, he insisted.
Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at email@example.com. Follow him on Twitter @cnhifrankfort.