Teachers and state employees aren’t the only ones worried about Kentucky’s pension crisis. Education officials estimate that Kentucky’s six regional universities and the Kentucky Community and Technical College System will have to pay 70 percent more next year to fund the pensions of thousands of their workers. It’s a combined increase of $47 million.
The University of Kentucky and the University of Louisville fund their own retirement systems, but for the state’s smaller schools, the higher pension payments required by the state could bring campus budget cuts that range from 4.4 percent at the Kentucky Community and Technical College System to 24.8 percent at Northern Kentucky University.
In all, the cost of funding pensions for their workers in the Kentucky Employees Retirement System is expected to jump from $67 million this year to $114 million next year. Lawmakers could make changes to the pension systems that affect those payments for the fiscal year that begins July 1, but a sexual harassment scandal in the state Capitol appears to have at least temporarily derailed that effort.
That’s not the total pension obligation for these schools. They have 4,075 workers in the struggling KERS, which has only 14 percent of the funding it is projected to need to pay promised benefits in the future. They also have 3,500 workers in the Kentucky Teacher Retirement System, which is healthier but also will require increased pension payments, although the totals haven’t yet been calculated.
Generally speaking, non-educators are part of the employees retirement system, and faculty are part of the teachers retirement system.
Last Friday, the Council on Postsecondary Education approved a budget for the state’s university system that asks lawmakers to provide schools with the $47 million for increased pension payments to KERS.
“The concern is that if the campuses have to absorb the $47 million without any state support, it’s a budget cut, a double whammy,” and more cuts after nearly a decade of state funding losses could lead to even bigger tuition increases, council president Bob King said.
That funding request, though, will have to compete with a growing list of other yawning budget gaps.
Last week, state budget director John Chilton said Kentucky will need an additional $1 billion a year to make its own pension payments unless lawmakers overhaul the pension systems. But even if lawmakers do make changes, the proposal by Gov. Matt Bevin might increase pension payments in the short term, not reduce them.
“There is a gaping hole in the next budget from the new contributions the administration is demanding for pensions, and no revenue on the table to pay for them,” said Jason Bailey, executive director of the Kentucky Center for Economic Policy. “I am afraid that any agency or program hoping to have those new costs covered will be forced to swallow them instead unless a better way is found.”
Small schools will feel the biggest crunch. At Morehead State University, an additional $3.1 million would have to be diverted to retirement payments, President Jay Morgan said.
“Obviously, this will have a negative impact on our operating budget and will force us to look at options, including discontinuing certain services, as well as cutting back on the number of employees that we can support at all locations,” Morgan said.
And, Bailey said, it’s hard to imagine that there won’t be more budget cuts on top of bigger pension contributions.
King said Bevin’s proposed pension bill would allow universities to move their future employees into a 401(k)-style defined-contribution plan, as is proposed for teachers and most state workers. But that change would not eliminate the need for more money to pay for the pensions of current employees.
King is convinced that Bevin and state lawmakers understand how crucial higher education is to improving the Kentucky economy. Even though universities have taken plenty of financial hits in the past decade — $204 million in reduced state funding — they have increased the number of diplomas granted by 35 percent in that same 10-year period. In the 2016-17 school year, colleges and universities gave out a record 70,146 degrees and credentials, up 6.6 percent from the year before.
“We recognize the challenge, but we also know the state cannot cut its way to prosperity,” he said. “It’s going to need to invest, and the most significant investment is in the human capital of the state, and you do that through education.”