The city has enlisted the help of a nationally known financial consulting group to help bring the unfunded liability of Lexington's police and fire pension fund under control.
Two officials from Public Financial Management Inc., better known as PFM, introduced themselves to members of Mayor Jim Gray's pension reform task force during a meeting Thursday. The consultants intend to create a consensus among the pension fund's many stakeholders and present changes to Kentucky's General Assembly during the legislative session early next year.
The cost to retain the Pennsylvania-based firm, which has independently consulted for governments in financial peril throughout the country, is not to exceed $160,000, said Scott Shapiro, senior adviser to the mayor.
The cost will be paid jointly by the city and as-yet unnamed private donors, he said. More details about the deal's finances will be made public Tuesday at the Urban County Council work session.
Even though the council has not yet approved PFM's hiring, the firm has begun interviewing the pension fund's stakeholders, which include city administrators, police and fire employees and retirees, unions, the board that administers the funds, and various committees that have studied the issue.
If the council votes not to approve PFM's hiring, the private donations will cover the cost of the work the firm already has done, Shapiro said.
"We're under a very tight timeline to try to get to some consensus on pension reform (before the General Assembly convenes in January), so they started their initial interviews," he said.
Lexington's pension fund for police and firefighters is unusual because it is regulated at the state level but funded locally through taxes, investments, bonds and employee contributions.
Changing the fund requires enlisting legislators to sponsor changes in state law. Previous attempts to alter the pension fund have been stymied by Lexington's police and fire unions and the city.
Michael Nadol, managing director at PFM, said the structure of Lexington's pension fund presents challenges, but it also provides incentive for groups with opposing interests to work together.
"The best changes for a retirement system happen when there's consensus among the stakeholders, so I don't think that's an insurmountable obstacle," he said. "In some ways it's creating a framework that hopefully can bring everyone together to find a good result."
The police and fire pension fund's unfunded liability was measured at $258 million in a 2010 actuarial report, Shapiro said. The results of a more recent actuarial study will be released in the coming months, with the unfunded liability expected to have increased, he said.
Critics have said the debt, if left unchecked, could make the pension fund insolvent or bankrupt the city. That's why time is of the essence, PFM officials said.
"What you have here is a city that is struggling with budget challenges — that has seen more and more of its budget squeezed by different pressure points — but still is fundamentally sound," Nadol told the task force Thursday. "If you act before you hit that severe crisis, the kinds of choices you can make, while not easy, are much more manageable than when you hit that breaking point."
Josh Kegley: (859) 231-3197. Twitter: @HLpublicsafety.