Governor Steve Beshear: All Ky. Will Suffer Without Pension Reform.
All Ky. will suffer without pension reform
By Steve Beshear
Soon after the General Assembly gaveled out of session this spring without addressing Kentucky's $27 billion and rising public-pension liability, two national credit agencies lowered the state's credit rating outlook.
If those agencies downgrade the credit rating itself, it could cost the state an additional $58 million a year in debt-service payments.
In this time of counting nickels and stretching dollars, such a hit would be devastating.
Urgent is no longer a strong enough word. Critical is more accurate.
The longer the legislature waits to reform the state's public pension system, the worse the problem gets.
It's past time to put aside acrimony and partisanship and make fundamental changes to stop the bleeding of taxpayer money.
The frustrating thing is that there is already agreement: All parties recognize the problem and in general agree on how to address it.
Yet a final strategy remains elusive.
I proposed a comprehensive pension-reform package before the 2008 legislation session. The House and Senate passed versions of that plan, but legislative leadership could not agree on a final product.
So recently I announced a two-pronged strategy to break this disappointing impasse.
First, I directed my staff to take the House and Senate pension proposals and write legislation based on those many areas in which there already is consensus. Among the changes that should be made immediately are:
• Raising retirement ages for future hires.
• Lowering the cost-of-living adjustment to 1.5 percent.
• Requiring new employees to contribute 1 percent of their salaries to the health insurance fund.
• Reforming the practice of double-dipping.
House and Senate leaders are analyzing that legislation now. If they reach agreement, I intend to call a special session on pension reform beginning June 23.
There are several reasons that it's imperative we act on these proposals before the fiscal year begins July 1.
The longer we wait, the faster the unfunded liability will grow, and the more money we will have to divert on a yearly basis from people-based programs like education, public protection and human services.
Actuaries and budget experts say this reform plan could reduce taxpayer payments to the retirement systems by nearly $500 million a year.
Cities, counties and school districts need relief. Rising obligations are forcing many to raise taxes, lay off workers, freeze hiring and cut programs and services. "The current picture is ugly, the future is even more ominous," one local official has said.
This pension-reform plan provides about $56 million in immediate relief for cities, counties and school districts beginning July 1.
I cannot stress this enough: The pension crisis is not just a Frankfort problem. It's affecting residents across this state.
The state will experience a record number of retirements this year. Failing to reform the system and curb the practice of double-dipping could mean significant additional costs.
If we don't act, the system will run out of money, at this point as early as 2022.
And Kentucky's credit rating stands to suffer if we don't act.
I also have signed an executive order creating a working group composed of experts from the private sector, local governments, the state and employee groups. Not just a perfunctory task force, this group has a specific mission to complete before January's legislative session.
The task force, which has already begun meeting, will write strategies to reverse two major cost drivers of our pension liability: lagging investment returns and the state's failure to meet its funding obligations.
And it will tackle controversial issues on which the House and Senate have been unable to agree, such as new models for future benefits and the governance of the system.
But we must not continue to let these issues sabotage the fundamental fix of the pension problem; they are peripheral and distracting.
In short, we're out of time. I suspect, too, the public is out of patience. For too long partisan bickering, political posturing, shortsightedness and "gotcha" attitudes have dominated.
Kentucky is beset with fundamental woes: an economy in need of updating, lack of high value placed on higher education, too many children unprepared for school, health care that in some areas is neither accessible nor affordable, lack of personal responsibility for our health.
But the biggest disease might well be our aversion to statesmanship.
On the public-pension crisis, we elected officials have a chance to act like leaders, regardless of political affiliations. I for one am committed to doing so, and I hope others join me.
By Steve Beshear
Soon after the General Assembly gaveled out of session this spring without addressing Kentucky's $27 billion and rising public-pension liability, two national credit agencies lowered the state's credit rating outlook.
If those agencies downgrade the credit rating itself, it could cost the state an additional $58 million a year in debt-service payments.
In this time of counting nickels and stretching dollars, such a hit would be devastating.
Urgent is no longer a strong enough word. Critical is more accurate.
The longer the legislature waits to reform the state's public pension system, the worse the problem gets.
It's past time to put aside acrimony and partisanship and make fundamental changes to stop the bleeding of taxpayer money.
The frustrating thing is that there is already agreement: All parties recognize the problem and in general agree on how to address it.
Yet a final strategy remains elusive.
I proposed a comprehensive pension-reform package before the 2008 legislation session. The House and Senate passed versions of that plan, but legislative leadership could not agree on a final product.
So recently I announced a two-pronged strategy to break this disappointing impasse.
First, I directed my staff to take the House and Senate pension proposals and write legislation based on those many areas in which there already is consensus. Among the changes that should be made immediately are:
• Raising retirement ages for future hires.
• Lowering the cost-of-living adjustment to 1.5 percent.
• Requiring new employees to contribute 1 percent of their salaries to the health insurance fund.
• Reforming the practice of double-dipping.
House and Senate leaders are analyzing that legislation now. If they reach agreement, I intend to call a special session on pension reform beginning June 23.
There are several reasons that it's imperative we act on these proposals before the fiscal year begins July 1.
The longer we wait, the faster the unfunded liability will grow, and the more money we will have to divert on a yearly basis from people-based programs like education, public protection and human services.
Actuaries and budget experts say this reform plan could reduce taxpayer payments to the retirement systems by nearly $500 million a year.
Cities, counties and school districts need relief. Rising obligations are forcing many to raise taxes, lay off workers, freeze hiring and cut programs and services. "The current picture is ugly, the future is even more ominous," one local official has said.
This pension-reform plan provides about $56 million in immediate relief for cities, counties and school districts beginning July 1.
I cannot stress this enough: The pension crisis is not just a Frankfort problem. It's affecting residents across this state.
The state will experience a record number of retirements this year. Failing to reform the system and curb the practice of double-dipping could mean significant additional costs.
If we don't act, the system will run out of money, at this point as early as 2022.
And Kentucky's credit rating stands to suffer if we don't act.
I also have signed an executive order creating a working group composed of experts from the private sector, local governments, the state and employee groups. Not just a perfunctory task force, this group has a specific mission to complete before January's legislative session.
The task force, which has already begun meeting, will write strategies to reverse two major cost drivers of our pension liability: lagging investment returns and the state's failure to meet its funding obligations.
And it will tackle controversial issues on which the House and Senate have been unable to agree, such as new models for future benefits and the governance of the system.
But we must not continue to let these issues sabotage the fundamental fix of the pension problem; they are peripheral and distracting.
In short, we're out of time. I suspect, too, the public is out of patience. For too long partisan bickering, political posturing, shortsightedness and "gotcha" attitudes have dominated.
Kentucky is beset with fundamental woes: an economy in need of updating, lack of high value placed on higher education, too many children unprepared for school, health care that in some areas is neither accessible nor affordable, lack of personal responsibility for our health.
But the biggest disease might well be our aversion to statesmanship.
On the public-pension crisis, we elected officials have a chance to act like leaders, regardless of political affiliations. I for one am committed to doing so, and I hope others join me.
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