Frankfort, KY—A proposed special session on tax and pension reform would result in an increase in taxes for most Kentuckians and will not address the problems in Kentucky’s pension system. It is time we reform our pension system to be fair to the majority of Kentucky’s public employees and to the taxpayers. We must honor our commitments to teachers and state workers who have worked their entire careers, keeping in mind especially that they have been paying into their pension plans with the expectation that they could count on these promised benefits to see them through their golden years.
The pension system (KRS) has come off the tracks at several junctures during its 60-year history. Double-dipping, end of career piling on, structural imbalances, borrowing during tough economic times and underfunding have caused Kentucky to have one of the worst-funded pension systems in the nation.
The peak of baby boom retirement is near as our population ages. Our teachers, first responders and public employees are flocking toward retirement because of the uncertainty in the pension system, speculative funding cuts and policy changes. In addition, our educational and governmental institutions have lost – and will continue to lose – a record number of leaders and top managers possibly based upon this uncertainty.
Several bills in recent years have taken steps toward fixing the pension system abuses and curbing benefits. But we are still faced with a massive obligation that is underfunded. Kentucky’s total unfunded liability across all of its public pension systems is at least $40 billion.
Yet it is also true that pensions received by public retirees have a significant economic impact in the communities where those retirees live. In our largest county, Jefferson County, nearly $314 million were paid to retirees in 2016. In Campbell County, over $24 million was paid out in retirement benefits to KRS state and county retirees in 2016. Those dollars multiply as they are circulated through the local economy, with one recent study determining that each dollar in pension benefits supports $1.43 in total economic activity when those receiving benefits buy cars, groceries, consumer goods, see movies our go out to eat. That’s over $34 million in economic activity in just one county. Removing a portion of that activity with a benefit cut represents short-sighted thinking.
There are several options to consider when addressing the KRS system underfunding. As we work in our committees this summer and fall, and as we head into the 2018 budget session, I encourage my colleagues to look at all possibilities before asking the taxpayers to bear the burden. There are additional revenue sources available to use, including expanded gaming. Structural changes, benefit reduction for high earners, elimination of outside groups within the system, investment bonding of infrastructure projects, are all options available to us, keeping in mind that Kentucky workers in the private sector have no pension system, only what they have been able to save individually through their 401K plans. This year our retirement system investments have yielded a 13% return. This could be a good time to borrow against those earnings to bring the shortfall to a sustainable level.
At the high end, there are a minority of legislative and other public employees receiving pensions in excess of $100,000 per year. They are the exception and not the rule. Compare that with an average state/county worker pension of about $23,500 per year, and even that figure is skewed somewhat by deservedly higher benefits received by hazardous duty retirees. In fact, county system non-hazardous retirees receive an annualized benefit of only around $11,200. The average teacher pension is $37,000 per year, and, remember, teachers do not receive Social Security; the state pension is their entire retirement benefit.
We must come together as a bipartisan coalition to make the system more fair and sustainable into the future. By taking politics out of the way, we can be realistic in the options and find a solution that is fair to our retirees and taxpayers.
Representative Dennis Keene has served the citizens of the 67th District (Newport, Bellevue, Dayton, Silver Grove, Melbourne, Highland Heights, Southgate, and Wilder) in Campbell County since 2005. He served as chairman of the House Licensing and Occupations Committee for eight years, and currently serves on that committee as well as serving on Banking & Insurance and the Natural Resources & Energy Committees. Keene is an economic development advisor for EGC Construction. For more information, visit: www.DennisKeene.com.