FRANKFORT — Gov. Steve Beshear Tuesday proposed changes to the state pension systems that he says could save cities, counties and school districts $37 million in the next year.
The proposed change in the way that cities and counties pay into the pension system is one of a series of proposals to shore up the Kentucky Retirement System and the Kentucky Teachers Retirement System, which face ballooning shortfalls of at least $27 billion.
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Tuesday's proposal was the latest in a series of attempts to revamp the state's ailing pension system.
Under the proposal, cities and counties would have 10 years instead of five to pay their portion of employees' retirement into the system.
Because of changes to government accounting standards, there was an increase in the amount of unfunded liability in the pension in 2006. Local governments and school districts were asked to increase their payments to the pension system over five years.
By spreading the payments over 10 years, cities, counties and schools would see a decrease in payments at first. Those payments would gradually increase over time.
That means local governments would actually pay more over the 10-year period than over five years. But those beefed-up payments would come when the economy rebounds, Beshear said Tuesday at a press conference.
Lexington Mayor Jim Newberry and Louisville Mayor Jerry Abramson, both Democrats, supported Beshear's proposal, saying it was much-needed relief for counties and cities struggling to deliver key services as revenues decline. The move was also applauded by key statewide school groups.
If the change is adopted, Lexington's pension payments could decrease by as much as $1 million, Newberry said. "It's definitely several hundreds of thousands of dollars."
The city's expected payment to the pension system for its employees next year is more than $10 million.
The board of the Kentucky Retirement System must approve the change. That could be problematic. The KRS board discussed the prolonged payment schedule at its Nov. 20 meeting, but there was so little support for the measure that it was never voted on.
Mike Burnside, executive director of Kentucky Retirement System, said he and KRS Board Chairman Randy J. Overstreet met with the governor's staff Monday and agreed that they would talk to the full board about reconsidering the governor's proposal.
"It's very difficult economic times," Burnside said. "(The pension payments) are a strain on the cities and counties, we understand that. I empathize with them. The same economic conditions are affecting us. You have to weigh what's in the best interest of the trust with what's in the best interest of the employers."
For every dollar the pension system does not receive from local governments, it loses in potential investment returns, Burnside said. Moreover, the pension system is in a negative cash flow situation.
It is having to sell investments to make its payments to retirees, Burnside said. But he added that current retirees are in no danger of losing their benefits.
If the KRS board does not make the change, the legislature could change state law. Rep. Mike Cherry, D-Princeton, has pre-filed legislation that would make the change from five-year to 10-year payments.
Cherry said at Tuesday's press conference that he thinks he has enough support to get the bill passed in the House but that he could not say whether it would pass the Republican-controlled Senate.
Sen. Damon Thayer, R-Georgetown, who co-chairs the committee that the bill could go through in the Senate, called Beshear's proposal grandstanding and nothing but a "feel-good" measure to appease county and city leaders.
But Beshear said that KRS's own actuary has said it was fiscally sound to spread the payments over 10 years.
The governor also proposed removing a provision that would require counties and cities to continue to pay into the retirement system if they hired someone who had retired from state government and already had a retirement account. That would save counties approximately $2.1 million a year, Beshear said.
However, that's money that the retirement system needs, Burnside said.
Beshear, who two weeks ago proposed a two-pronged plan to address the state's projected $456 million shortfall, said he has not decided whether he will call a special legislative session to address his plan. That plan includes broad cuts to state agencies, and a 70-cent increase in the state cigarette tax.