Politics & Government

KY libraries, schools and cities face explosion in pension costs if relief bill dies

Unless state lawmakers act, the Leslie County Public Library faces a 50 percent hike in pension contributions for its nine employees on July 1, a devastating cost for a coalfield library already worried about losing $15,000 in annual state aid in Gov. Matt Bevin’s proposed budget.

“Our budget’s been cut in half over the last five years since coal went away, from $800,000 down to $400,000,” Clifford Hamilton, the library’s director, said Thursday.

“We’re burning through our reserves right now — a building fund that we had been saving up for an expansion — and when we finish with that, we’re not gonna have any choice left but to lay people off and close programs,” Hamilton said. “You take another $25,000 a year from us in pension contributions and I just don’t know what we’re supposed to do.”

There is a measure — Senate Bill 66 — that would offer relief on pensions to the library, and to the hundreds of city and county governments, school districts, health departments and other local entities enrolled in the County Employees Retirement System, one of the three systems at Kentucky Retirement Systems that provide pensions for public workers.

The bill would place a 12 percent cap for the next decade on increases in pension contributions for these public employers. Instead of paying $5.4 million more next year for its 1,806 classified employees, for example, the Fayette County Public Schools would pay $1.4 million more.

But Senate Republican leaders say they won’t pass Senate Bill 66 unless they also can find enough support to pass Senate Bill 1, their controversial pension systems overhaul that would cut retirement benefits for teachers, among other changes.

With 10 days left in the legislative session, the pension overhaul bill appears stalled. So Senate GOP leaders on Monday sent the pension relief bill back to the Senate committee that approved it last month, effectively killing it for now.

People soon will appreciate the need for pension reform, Senate President Robert Stivers said Thursday when asked about the decision to shelve the pension relief bill.

“Come July 1, the impacts of this problem, which are much greater than a Frankfort level problem, will be felt in many different areas of the state of Kentucky,” said Stivers, R-Manchester.

However, a critic said Republican politicians in Frankfort are going to inflict serious pain “for no good reason” when local governments are forced to slash services.

The Senate’s proposed pension overhaul is mostly about teachers, who are enrolled in the Teachers’ Retirement System of Kentucky, not the public workers enrolled in CERS, said Jason Bailey, executive director of the Kentucky Center for Economic Policy in Berea.

“There is no relationship between Senate Bill 66 and Senate Bill 1, no reason to connect the two, other than that this is a political maneuver for the Senate to pressure local governments to support Senate Bill 1 if they want relief on their pension costs,” Bailey said.

“I really fear what we’re going to see happen next,” Bailey said. “I mean, look at the list of local governments that are on the list of who’s facing a 50 to 60 percent pension contribution increase. You’ve got the Martin County Water District on there. Where is the Martin County Water District going to get that kind of money? It’s barely solvent as it is.”

The contribution increases are driven primarily by revised financial assumptions that the Kentucky Retirement Systems Board of Trustees adopted last year at the urging of several Bevin appointees.

The board previously assumed a 7.5 percent rate of return on investments for CERS, but that was lowered to 6.25 percent based on what CERS actually was earning in recent years. The board also assumed a payroll growth rate of 4 percent, but it cut that to 2 percent to reflect stagnant government salaries and declining numbers of public workers.

Based on those new assumptions, the unfunded pension and insurance liabilities of CERS — which covers 229,205 people — immediately rose from $7.4 billion to $9.5 billion. So the sums owed to the system by employers mushroomed, too.

As of last June 30, the primary CERS pension fund had 54 percent of the assets it’s expected to need for future payments to retirees, compared to just 13 percent for the primary pension fund for state government employees at KRS.

Compared to state government pensions, the local government pension system “is in significantly better shape, it’s got billions of dollars in assets that allow for more productive investments, it’s on a solid path to better funding,” Bailey said. “We don’t need to be hitting the local governments with these sorts of rate increases. It’s a crisis that Frankfort has manufactured for itself, as far as the local pensions.”

Although teachers are enrolled in the Teachers’ Retirement System, school districts must pay pension contributions for their classified employees in CERS, such as administrators, clerical staff, lunchroom workers, custodians and bus drivers.

As a result, some of the biggest CERS employers — who will be the most on the hook after July 1 — are school districts, such as Pike County Public Schools, which will see its pension contributions jump from $2.6 million to $4 million for its 1,134 classified employees.

“Pike County really faces a perfect storm in that it has a large number of employees enrolled in CERS, and at the same time, it covers a large area of geography and it faces increased transportation costs in the next state budget, and of course it’s been losing out on coal-severance taxes because of the decline in mining,” said Eric Kennedy of the Kentucky School Boards Association.

The Kentucky League of Cities said Thursday that it hasn’t given up hope for pension relief, which the group says is essential following the KRS board’s decision last year to adopt more pessimistic financial assumptions.

“Regardless of what happens to Senate Bill 1 or Senate Bill 66, city governments are urging the legislature to intervene and provide rate relief during this session to correct the action by the KRS board,” said Bryanna Carroll, the group’s director of governmental affairs. “We will choose to believe politics are not in play.”

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