This commentary submitted by the 36 members of the Kentucky House Democratic Caucus
As Gov. Matt Bevin and Republican legislators move toward shifting much of the financial burden facing our public retirement systems to the workers and retirees themselves, those of us in the House Democratic Caucus want to be clear: We stand united in opposition.
We are against this bill for several reasons. For one, it was written behind closed doors with no input from us or any of those who would be most affected. This legislation is proof that if you’re not at the table, there is a good chance you’re going to be on the menu.
Second, there are serious legal issues that could take years for courts to resolve. We will not support — nor do we think any judge will allow — proposals that break the inviolable contract made between public agencies and their employees. Even attempting such a move threatens mass retirements that would have a lasting impact on services and severely limits our ability to hire well-trained and dedicated workers in the future. It could be downright devastating for public education.
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Third, this proposal would cost taxpayers more while providing less benefit to public employees and retirees — the exact opposite of what elected officials should be doing. Closing the retirement systems to new employees would end their flow of contributions and ramp up what governments would need to pay as investments become increasingly conservative. Moving away from professional management of pooled retirement accounts, meanwhile, would put workers more at risk during downturns like we saw during the Great Recession.
Many have asked us, “So, what is your plan?”
We begin by pointing out 2013’s bipartisan reforms that all but eliminated the possibility of future liabilities from newly hired state and local government workers, who now number about 50,000. Their retirements, while afforded some protections, do not guarantee a consistent monthly benefit.
Those reforms also put us on the path to pay the actuarially required contribution, or ARC, that keeps the plans solvent. If we continue doing that, the retirement systems will return to healthy funding levels. When the plans have what they need, they have a better chance to succeed, as we saw last year when their investment returns topped 13 percent.
We, as a caucus, also believe it is time to discuss sensible revenue options to address the retirement systems’ long-term liability. Those could include scaling back a portion of the $1.6 billion-plus the state will spend during the current two-year budget cycle for services provided by the private sector.
We should also review the $13 billion the state exempts in taxes each year, a number larger than what the state receives. Some exemptions granted years ago may have outlived their economic usefulness.
At the very least, we need more time, because the governor’s proposal has the potential to be one of the most far-reaching laws the General Assembly has ever passed. It will have a direct impact on nearly 500,000 citizens who have paid into or are drawing from a state-run public retirement account and hundreds of thousands of others who are also counting on this income.
These retirement benefits are also an important cog in our economic engine, with payments totaling $3.4 billion each and every year.
Setting aside just days to review a bill of this magnitude is wrong, and there is no reason to spend more than $300,000 in tax dollars for a special session when legislators are set to return to the Capitol in early January.
We need time as well to see what Congress might do regarding federal tax reform. Although it appears it is moving away from a proposal to severely limit pre-tax contributions to retirement accounts like those Bevin is proposing, nothing has been finalized. As such, we should proceed with caution. If the proposed pre-tax contribution limits did pass, it could be especially catastrophic for our teachers, because they do not pay into Social Security.
Overall, our caucus believes that if we can find relatively modest savings in state spending, if we can close tax exemptions that are no longer effective, if we can avoid legal troubles caused by trying to break contractual requirements with our public workers, if we can keep paying the retirement systems what we owe as we have done in the current budget — then we can, over the next 30 years, bring these liabilities down in a way that protects workers, retirees and taxpayers alike.
That is our plan.