FRANKFORT — A bill that would extend local governments' payments into the state's ailing pension system might have opposition in the coming legislative session because of growing concern over the system's ballooning shortfalls.
Gov. Steve Beshear has backed a plan that would expand payments that cities and counties are supposed to make into the state's ailing retirement system from five to 10 years.
Under the extended payment plan, local governments would pay less in the first few years but pay more overall. The extended payment plan could save local governments as much as $37 million in the next year, Beshear said at a December press conference announcing the plan.
Rep. Mike Cherry, D-Princeton, has filed a bill that would move cities and counties to the delayed-payment schedule. But the measure probably will have opposition in the Republican-controlled Senate and from the Kentucky Retirement Systems board because of concerns about the system's expanding shortfalls.
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The Kentucky Retirement Systems and the Kentucky Teacher Retirement System are facing shortfalls of at least $30 billion.
Cherry, however, is optimistic that he will be able to persuade his Senate counterparts to get behind the bill. And he is likely to get help from mayors and county judge executives who are trying to provide essential services while revenues decline.
"I don't think it will create problems down the road," Cherry said. "The cities and counties are not saving any money whatsoever, it's just shifting the burden to later down the road. We've got to think the economy is going to get a lot better in the next few years."
Sylvia Lovely, executive director of the Kentucky League of Cities, said her organization and its members will be supporting the bill because it provides much-needed fiscal relief to counties and cities.
But Sen. Damon Thayer, R-Georgetown, who co-chairs the committee the bill would go through in the Senate, said there has been reluctance in the Senate to support any measure that could cause financial hardship to the pension system.
"There is not much support for that in the Senate," Thayer said of the extended payment schedule. "I sympathize with the local governments. But that bill would roll back some of the progress that we made in House Bill 1, in terms of contributions to the system and keeping the system solvent."
During a 2007 summer special session, the General Assembly approved a series of changes to the pension system to make it more solvent.
The Kentucky Retirement Systems board has also failed to support the delayed payments in the past because of concerns over the financial health of the pension system.
At its November meeting, the board declined to vote on the measure because there was so little support.
Mike Burnside, the executive director of the Kentucky Retirement System, said board chairman Randy Overstreet has talked to several board members since November and there still seems to be reluctance on the part of the board to approve the extended payment plan. It's unlikely that the board will put the plan on the agenda for its February meeting, Burnside said.
If the pension board does not approve the change, the General Assembly would have to pass Cherry's bill for the extended payment plan to take effect.
Burnside said the pension board is concerned that the extended payment plan will create even greater shortfalls in the pension system.
"If they can't afford the higher payments now, will future city administrations be able to afford to pay a much higher premium over a period of time?" Burnside said. "From our standpoint, the trust fund is much better off to get the money upfront and take advantage of the (low prices for stocks and bonds)."
The pension system is also having a cash-flow problem. In 2008 the system paid out $1.5 billion in pension and insurance benefits, but it took in only $1 billion from payees, the state and local governments. Typically the pension system would be able to use gains from investments to make up the difference. But because the stock market has performed so poorly, the pension system has had to sell its assets to make its payments.
Cherry and others who back the bill say that the pension system's own actuarial analysis says the extended payments wouldn't be detrimental to the pension system.
"I think it's actuarially sound," Cherry said.
Cherry also plans to file a bill that would change the make-up of the pension board to include more people with investment experience, a move that the pension system may take issue with, Burnside said.
Burnside, who has not yet seen the bill, said he couldn't comment on it until he elarned more details.