As schools finish up their year and we all prepare for the summer ahead, it may not feel like a major crisis is just a few weeks away, but that is exactly what Kentucky faces if Governor Bevin and the General Assembly don’t act soon.
What will happen if nothing is done? Dozens of public health departments – including those in Pike, Letcher and Martin counties – would be forced to slash services, reduce employees, or even shut their doors, affecting everything from primary care and immunizations to restaurant inspections.
Mountain Comprehensive Care and Judi’s Place for Kids, plus many others like them that serve some of our most vulnerable citizens, would suffer a similar fate, while our regional public colleges and universities would almost certainly shutter classes or even entire degree and training programs.
We should not let any of this happen, but if Governor Bevin doesn’t call a special session soon, and the General Assembly doesn’t address this matter, that is exactly what we will see beginning July 1st, the start of the new fiscal year. In addition to disrupting the lives of potentially hundreds of thousands of people, this could also cost the state $400 million or more as it scrambles to provide the legally required services we now get every single day from these quasigovernmental agencies.
Understandably, many may wonder how we got here and why this is such a major problem now. The quick answer is that these agencies and postsecondary schools pay into the state retirement system and are nearing the end of a one-year rate freeze in payments that the General Assembly granted them in 2018. Without a second 12-month freeze, these payments will jump 70 percent in July. That’s about $120 million extra a year for the dozens of affected agencies and postsecondary schools, money they just don’t have.
The reason for this sudden increase can actually be traced back to 2017, when the Kentucky Retirement System’s Board of Trustees – which Governor Bevin disbanded and then re-authorized – dramatically lowered assumptions that determine how much employers belonging to KRS have to pay.
The investment rate for the retirement plan the quasi-governmental agencies pay into is now based on 5.25 percent growth, which is the lowest rate among public retirement systems across the country and well below the 7.19 percent in actual growth this system has seen over the past five years.
These extreme assumption changes meant that long-term liabilities went up by billions of dollars overnight, even though common practice is to phase these changes in gradually.
State government was able to handle that steep cost in the current two-year budget, but the General Assembly gave local governments five years to ramp up to their full amount and provided the one-year rate freeze to the regional universities and quasi-governmental agencies.
During this year’s legislative session, the Kentucky House unanimously voted to extend the rate freeze for another year, which would give us time to come up with a more permanent solution as part of the 2020 budget process.
The state Senate, however, refused to let the freeze stand alone. Instead, the misguided plan that ultimately passed would have all but forced the affected agencies to leave the state retirement system while taking on debt that would require decades to pay off.
Governor Bevin upended this plan by vetoing the bill, despite initially indicating support. Since then, he has offered a similar, but still highly problematic, bill that marries the needed rate freeze with a convoluted system that would saddle the state and KRS with hundreds of millions of dollars in extra costs over the next 25 years with no way to pay for it. This proposal would also threaten the retirement security of many public employees and keep their agencies mired in debt for years.
Legislative leaders told Governor Bevin in April that it was up to him to find the support needed to pass his plan – and that process was still up in the air heading into the long Memorial Day weekend.
As we saw with last year’s public-pension bill, which the Kentucky Supreme Court unanimously rejected because of the quick and secretive way it was passed, no one is served well by making billion-dollar decisions with our backs up against the wall. Taxpayers, shareholders and legislators on both sides of the political aisle deserve time to weigh in on the process and be part of a solution that can stand the test of time.
That is why we and our fellow House Democratic Caucus members feel so strongly that it is more important to get it right rather than rush without fully vetting the potential consequences and risking years of litigation.
There has to be a better way, and it starts with enacting another one-year rate freeze to give us time to find it. For taxpayers and those directly affected, this is the only sensible option left in the four or so weeks we have to act.
Hatton and Harris represent Letcher and Pike counties in the Kentucky House of Representatives.