Friday may be the end of the workweek for most of us, but this past one turned out to be the start for the General Assembly, since that’s when Governor Bevin called legislators to Frankfort to kick off a special legislative session.
The topic at hand is one that has dominated the legislature’s agenda since the beginning of the year: How to help quasi-governmental agencies and regional public universities with a 68 percent spike in their payments to Kentucky Retirement Systems (KRS) during the current fiscal year, which began early this month.
If these agencies don’t get relief soon, and a viable long-term plan to handle their future costs, some if not most of them will have to slash services or even close their doors. Those directly affected include most of our public health departments, rape crisis centers, mental health organizations, domestic violence shelters and the regional universities.
I want to emphasize that the legislation being considered does NOT have a direct impact on state and local governments, first responders, or our elementary and secondary schools. The University of Kentucky and University of Louisville are unaffected, too, because they have a different retirement plan.
The root of this issue essentially began two years ago, when the Governor Bevin-appointed KRS Board of Trustees voted to dramatically lower assumptions overnight. That change, which should have been phased in over a period of years, added billions of dollars to KRS’ long-term liability, which in turn caused annual payments by contributing employers to go up as well.
State government handled that added cost in the budget adopted last year, and local governments were given five years to ramp up to their full contribution rate. The quasi-governmental agencies, however, were given a one-year freeze in their payments, but that reprieve ended several weeks ago.
The General Assembly sought to fix this issue during our regular session, but Governor Bevin vetoed that bill in early April, ensuring a special session would have to be called.
I had serious concerns with most aspects of the vetoed bill as well as the plan the governor proposed as its replacement in early May. That bill, which could become law this week with a few tweaks, has the additional 12-month freeze in payments that I and everyone else want for our quasi-governmental agencies, but it would cause major harm over the long-term.
If it becomes law, these agencies will face crushing debt for years to come; the nation’s lowestfunded public retirement system will be undermined; thousands of public servants will potentially lose retirement security they’ve counted since they began their career; and the state would face the likely prospect of taking over mandated services in our communities if any quasi-governmental agency has to close, at a potential cost of hundreds of millions of dollars a year.
On top of that, there are two pressing legal questions about the governor’s bill: Will it have enough votes to meet a constitutional requirement in a non-budget year, and does it violate contract rights of the affected public employees?
Some of my colleagues have been working for weeks on an alternative that avoids all of these issues. It provides more certainty and stability for everyone involved, and it gives the state and the affected agencies a road map to follow for the next 24 years, when the long-term liability is scheduled to be paid off.
This plan does two main things: It freezes the current payments for the affected agencies, which are already paying the state retirement system almost 50 cents for every dollar of salary; and, for the next five years, it moves excess retiree health insurance payments to the pension side, which has a much lower funding level.
Kentucky has one of the highest funding levels on the retiree health insurance side when compared to other states, and this transfer would not have an impact on current retiree health care. This fiveyear “loan” would also be paid off at the same time the overall liability is.
The KRS Board of Trustees would also be limited in how fast they could change assumptions in any given year, to avoid the type of sudden drop we saw in 2017.
In addition to this bill, I sponsored House Bill 3, which would implement a second 12-month freeze in payments for the quasi governmental agencies. This would guarantee the affected agencies have at least the shortterm relief they need if the governor’s bill does become law but is struck down in court.
Unfortunately, neither of these two bills cleared committee on Saturday, setting the stage for the governor’s to pass.
As of this writing, it is too soon to say if it will become law, but a final vote could be as soon as today (Wednesday). I will cover the outcome during next week’s column. For now, I encourage you to reach out to me if you have any questions or comments.
My email is Angie.Hatton@ lrc.ky.gov, and you can leave a message for me or any legislator by calling the General Assembly’s toll-free message line at 800-372- 7181. For those with a hearing impairment, the number is 800- 896-0305.