Kentucky’s never-ending saga of pension reform has reached the height of absurdity.
Anyone trying to understand Senate Bill 1, sponsored by Owensboro Republican Sen. Joe Bowen, merely by listening to the rhetoric from Kentucky labor unions would walk away with zero understanding of the bill’s contents or the larger issues at hand.
By only listening to the rhetoric you would have no idea that Kentucky had a pension crisis at all. You would have no idea that a study by S&P last year found that Kentucky had the worst funded pension system in America at under 37.4 percent, barely above half the national average. You would have no idea that the plan with the worst funding, the Kentucky Employees Retirement System for non-hazardous employees, is only 17 percent funded and could completely run out of money by 2024.
You would know nothing of how recent budgets have attempted to make up ground after nearly two decades of malfeasance. You wouldn’t know that in 2014, Pew found that Kentucky was falling behind faster than any state in America at funding its pension system or that before 2016, the state had failed to fully pay its pension liability 15 out of 22 years. You wouldn’t know that since Matt Bevin took over as governor, the percentage of funding dedicated the Kentucky Teacher Retirement System in the budget has more than doubled, from only 45.6 percent of the request funded in fiscal year 2015, to 93 percent in fiscal year 2017. You wouldn’t know that this year’s budget will provide for 100 percent of the annual contribution required.
You certainly wouldn’t know that even if there was proper funding over the previous 20 years, there would still be a crisis. If you only listened to the rhetoric, you would know nothing of the disastrous structural issues that have left taxpayers footing the bill for a broken system.
Just two short decades ago almost every one of Kentucky’s pension categories were fully funded. Some elected officials saw it as an opportunity to hand out political favors adding on benefits that had never been paid for, that took valuable money out of the system, and compounded the negative cash flow draining the systems.
Even aside from these questionable handouts, this alone fails to illustrate how broken the structure is. Nothing illustrates it better than the system for non-hazardous county employees. Their system is required, by law, to pay its full funding contribution every year. In 2005, it was 94 percent funded. Today, it is 59 percent funded. You may have heard “find funding first,” but you probably didn’t know that underfunding only accounted for 15 percent of Kentucky’s pension liability and that even for categories that were fully funded in the first place, the system failed.
If you only listened to the rhetoric, you undoubtedly wouldn’t know that Kentucky provides some of the best pay and benefits in our region for teachers. According to the National Education Association, average teacher pay in Kentucky in 2016 was $52,134, ranking higher than neighboring Virginia, Indiana, Tennessee, Missouri and West Virginia. You wouldn't know that the average salary of a teacher in Kentucky is nearly 10 percent higher than the state’s average income for a household, or that the average pay increase for a Kentucky teacher from 2015 to 2016 was 1.9 percent, the 13th-highest increase in the country. You wouldn’t know that Kentucky is the only state where a teacher can retire and begin drawing retirement income in their 40s and that many of our neighboring states don’t allow a teacher to draw from retirement finds until they are at least 62 years old.
Once a person does retire, if you only listened to the rhetoric, you probably wouldn’t know that a retiree doesn’t pay state income taxes on up to $41,000 of pension income. You probably wouldn’t know that the widely discussed cost-of-living adjustments (COLAs) are not guaranteed in many states but would continue to be guaranteed in Kentucky with Senate Bill 1.
With Kentucky’s COLAs, a retiree with a $40,000 a year pension currently gets an additional $1.64 a day. Senate Bill 1, which still provides a guaranteed daily increase of $1.10 only cuts this rate of increase by 54 cents, the equivalence of two cups of coffee a week. The change is measly for retirees, major savings for the state, which will save over $3 billion, and only a minor part of the overall unfunded liability which will still largely be shouldered by state taxpayers.
So, why wouldn’t you know all of this? Why have the facts of pension reform been lost?
We should be honest enough to call a spade a spade. Labor unions have taken a position of absolutist opposition to pension reform and focused instead on a concerted effort to misinform the public and intimidate legislators.
When Senate Bill 1 was introduced, Bowen gave an excellent floor speech that detailed how the bill had been crafted. He explained how he had given consideration to all parties, from retirees to taxpayers, and how everyone had given up some of their ambitions to find solutions. His speech was spot on. Taxpayers will shoulder significant risks and cuts to other government services to make up for Kentucky’s broken pension system.
Rather than share the burden and put the interest of our commonwealth first, one side has decided that they would rather deceive the public and force the entire burden on the taxpayer.
It is truly the height of absurdity.
Jordan Harris is executive director of the Pegasus Institute.
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