Mayor Jim Gray announced Thursday a pension-reform task force to recommend ways Lexington can address the financial crisis in the police and fire pension fund.
The long-term outlook of the fund is "bleak," Gray said, and it could grow to levels that threaten the fund's ability to pay benefits to retirees.
Although the unfunded liability in benefits is estimated at $221 million, the total liability of the fund — including medical expenses and bonded debt — is estimated at $536 million. "That's more than twice the size of the city's annual general fund budget," Gray said.
Unless the problem is addressed, the city could face "a significant disruption in the level and quality of all services performed by local government," he said, because it reduces the money available for things like parks and recreation, streets, social programs and the arts.
Cities throughout the nation are facing a similar financial crisis; some are considering bankruptcy. Gray said he had been insolvent once in his private business career, and he did not want to repeat the experience.
Lexington is in a unique position as the only Kentucky city with a pension fund operated and funded on the local level but controlled by the state legislature.
Tim Kelly, the recently retired publisher of the Lexington Herald-Leader, will lead the task force. The vice chairman will be lawyer Gene Vance. Other members include representatives of police, fire, the Urban County Council and business, and people with pension finance expertise.
Gray invited all members of the Fayette County legislative delegation to join the group. House Democrat Kathy Stein attended Wednesday's news conference announcing creation of the task force.
Kelly said he understood the importance of a pension for police and firefighters, and the seriousness of the problem facing the city.
After the news conference, Kelly said there was some debate about whether the $536 million figure was even accurate. "The figure could be larger than that," he said. "The city has been issuing bonds, pushing payment way down the road. That's dicey."
A new three-year contract ratified in September by the firefighters is expected to bring an estimated $4.7 million in savings over three years. It calls for a two-year wage freeze and other pay concessions.
The union also agreed to reduce city health insurance costs by $100 per firefighter per month for the first year of the agreement, reduce vacation and holiday leave time, and reduce extra pay for holidays for two years.
Gray was asked after the news conference how he planned to get police and fire unions to buy into reducing pension benefits. He said their awareness of the gravity of the city's financial situation "has grown substantially. Three years ago (when the last contract was signed) might as well have been 20 years ago."
"We think police and fire understand how serious the situation is. This time, we are very intentionally asking police and fire representatives to join us around the problem-solving table," he said.
Reach Beverly Fortune at (859) 231-3251 or 1-800-950-6397, Ext. 3251.