Politics & Government

Judge declares Kentucky's pension overhaul bill unconstitutional

Franklin Circuit Judge Phillip Shepherd struck down Kentucky's controversial new public pension law Wednesday and permanently enjoined Gov. Matt Bevin from implementing it.

In a 34-page ruling, the judge said the Republican-led General Assembly violated the Kentucky Constitution when it passed a surprise pension bill only six hours after introducing the legislation.

The legislature violated Section 46 of the Constitution in two ways, Shepherd ruled. First, it failed to give the bill three readings on three separate days in each chamber, as the Constitution requires, he ruled.

Lawmakers approved the pension bill on the 57th day of this year's 60-day legislative session by gutting a bill dealing with sewer systems and replaced it with the pension language, but Shepherd said that action meant the five previous readings the bill had received were no longer valid.

Second, he said the bill appropriates money, and therefore needed the support of a majority of all members in the House to pass. The bill was approved with only 49 votes, which is two shy of a constitutional majority in the 100-member chamber.

Because the bill was enacted improperly, Shepherd said he did not consider whether the law violates the state's "inviolable contract" with teachers and other public workers.

Attorney General Andy Beshear, who challenged the law with the Kentucky Education Association and the Kentucky State Lodge Fraternal Order of Police, and Bevin's attorney, Steve Pitt, argued June 7 before Shepherd whether the legislature followed proper procedures in passing the law and whether it runs counter to an inviolable contract — language that guarantees teachers and state workers get the benefits promised when they are hired.

The law places teachers hired after Jan. 1, 2019, in a hybrid cash-balance plan, which is similar to a 401(k), rather than a traditional pension, and requires those teachers to work longer before becoming eligible for retirement. It also caps the amount of accrued sick leave teachers may convert toward retirement to the amount accrued as of Dec. 31, 2019.

State employees hired between 2003 and 2008 also are required to pay 1 percent more for health care.

The law sparked thousands of angry teachers to march on the state Capitol.

Thousands of teachers from all over Kentucky marched to the Capitol this spring in protest of the passage of Senate Bill 151 which changes the public pension system. Charles Bertram cbertram@herald-leader.com

"Today's ruling is a step toward giving Kentuckians the government they're entitled to under the constitution and that they deserve," Beshear said.

Bevin's communications director, Elizabeth G. Kuhn, said Shepherd's ruling was expected and that an appeal is imminent. The Kentucky Supreme Court is expected to ultimately decide the case.

"The consequences of this ruling are tremendous for Kentucky because hundreds, if not thousands, of bills have previously been passed by the General Assembly using the exact same process as Senate Bill 151," Kuhn said. "If all of these bills are now invalidated based on Judge Shepherd’s ruling, our legal system will descend into chaos."

Bevin has previously described Shepherd as an "incompetent hack" and unsuccessfully asked Kentucky Chief Justice John Minton to remove him from the case.

Beshear challenged the argument that the bill would apply to any law that had been passed in the same way as SB 151.

"There was only one bill that was challenged here, SB 151," Beshear said. "Nothing else was being challenged, nothing else is being impacted. The governor's claims that Western civilization would end or that this would void every single bill passed by the General Assembly are simply not true."

In his ruling, Shepherd noted that the lawsuit raises important questions of legislative practice and procedure under the the state Constitution.

"The wholesale violation of Section 46 is a threat to the integrity of the legislative process, and it undermines respect for the rule of law," he wrote.

Shepherd quoted delegates from Kentucky's 1891 constitutional convention and noted that they added a rule stating that a bill must be read three times in three consecutive days before it can be passed as a way to ensure that all legislators know what they are voting on and the public has time to express their opinion.

In the case of SB 151, Shepherd said, had lawmakers relied on the previous readings of the bill, they would have been under the impression that they were voting on a sewage bill.

"It is significant that the Governor fails to cite a single case from any jurisdiction that upholds this legislative sleight-of-hand when there is a constitutional requirement for three readings on three separate days," Shepherd wrote.

Shepherd also asked the Kentucky Supreme Court to revisit a previous ruling that allows the General Assembly to waive a requirement that they include an actuarial analysis or fiscal note on a bill.

"Our attorneys are reviewing the 34-page ruling, and at first blush it appears that this ruling puts in jeopardy decades of enacted revisions to Kentucky statutes that have followed the same process as Senate Bill 151," House Speaker Pro Tempore David Osborne, R-Prospect, said in a statement.

John Cox, the spokesman for Senate President Robert Stivers, R-Manchester, said Stivers would likely comment Thursday. Shepherd removed Stivers and Osborne as defendants in the case.

Larry P. Totten, president of the Kentucky Public Retirees System, said his group hopes the case goes directly to the Supreme Court and bypasses the Kentucky Court of Appeals "so that current public employees and teachers know the terms and conditions of their retirement benefits."

He added: "We also hope the court addresses the process by which language in bills that are further along in the legislative process is gutted and replaced by that from dissimilar bills."

Jim Carroll, the president of Kentucky Government Retirees, said he hopes the ruling will be a "teachable moment" for lawmakers and Bevin.

"This ruling should send a message that Kentucky Retirement Systems stakeholders, like any other members of the public, have a right to transparency and engagement on issues affecting their lives," Carroll said.

House Minority Leader Rocky Adkins, D-Sandy Hook, said the ruling is "a victory in every sense of the word for the people of Kentucky, especially our teachers, public employees and retirees."

Tres Watson, a spokesman for the Kentucky Republican Party, said Republicans are "confident this decision will be overturned upon appeal."

"We're not surprised Judge Shepherd sided with Democratic Attorney General Andy Beshear in his politically motivated lawsuit against the General Assembly's efforts to save our state retirement system," Watson said.

Kentucky's ailing public pension systems have an unfunded liability of more than $40 billion.

One legal argument Beshear lost Wednesday was his claim that the pension law violated the Constitution because it was signed by Osborne. Beshear argued the bill must be signed by the Speaker of the House, but the House did not have a speaker this year after Jeff Hoover of Jamestown resigned from that position early in the session because of a sexual harassment scandal.

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