Herald-Leader Editorial

Downgraded for pension inaction, Kentucky must raise money to fill hole

February 5, 2013 

Smoke and mirrors, delays and excuses have their use in political settings, but clearly bond-rating agencies are not impressed.

Last week, all three of the major agencies that rank the credit-worthiness of businesses and governments gave Kentucky bad marks, pointing to the deep hole our state has dug through underfunding and over-promising on pension benefits for public workers.

Standard and Poor's analyst John Sugden noted that Kentucky's economy is experiencing a "healthy recovery" and applauded the "conservative revenue forecasting" that keeps the brakes on new spending. But that's not enough, he wrote, to overcome the ever-worsening pension system, which has sunk to 49.9 percent funded, down from 53.4 percent last June with the funding "likely to continue declining," because the state is not putting in the money it owes.

The report notes that Kentucky has been studying this problem since 2008 and that a pension task force made recommendations last year, but "there is no clear timeline" for legislative action.

And there's no clear suggestion for where the money will come from.

There are two aspects to solving the pension problem. One is rejiggering the system for future employees to avoid digging such a deep hole. Lots of people are happy to talk about that since it a) is in the future, and b) likely means reducing benefits, a popular battle cry these days.

The other, much harder, problem is coming up with the money to fill the hole already dug.

It's important to point out that employees in the system have been making their contributions right along through regular deductions from their paychecks. It's the state's share that's fallen short. Even though Kentucky law required the payments, the legislature which writes those laws, was able to suspend them. Governors and legislators have lacked the discipline to pay in the present for benefits owed in the future.

So, solving that is much harder because it likely means, a) cutting an already thin budget, and b) raising some taxes somewhere to make up the huge deficit.

Under the plan proposed by the task force, the state would be paying in an amount about equal to total state funding for all higher education — universities, community and technical colleges.

Considering those numbers, we have to agree with Jim Carroll, founder of a Facebook community for state government retirees, who said reform legislation without a funding source is nothing but good intentions. That's "as meaningless as the existing state law that already mandates these payments and has been disregarded by the legislature for years," he wrote.

The message from the rating agencies is that wishing and praying won't put that kind of money into the retirement system. It takes a plan, it takes legislation, it means very difficult and probably unpopular decisions.

Political will being what it is, chances of getting something done are much greater during a special session, when raising revenue would require only a simply majority as opposed to the 60 percent required during this regular session.

That we can accept, but kicking this can down the road to 2014 is an expensive and irresponsible option that can only make matters worse.

Lexington Herald-Leader is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service