The Kentucky Supreme Court on Thursday unanimously struck down a controversial law that would have reduced retirement benefits for public employees, most notably by ending traditional pensions for school teachers hired after Jan. 1.
In a decision written by Justice Daniel Venters of Somerset, the court ruled on the most narrow of terms, finding that Republican legislative leaders erred by not giving the pension bill the constitutionally required three public readings in the Senate and House chambers before passing it last March.
Instead, the legislature hastily converted a sewage treatment bill into a pension bill on the 57th day of the 60-day session and then rushed it through final chamber votes in a matter of hours with no public review and little chance for debate. The sewage treatment bill already had received most of its necessary public readings, lawmakers said at the time.
That maneuver violated a process meant to provide transparency at the Capitol, the court said Thursday. Public readings of a bill over three separate days should give lawmakers and citizens a chance to understand what legislation is on the table, the court said.
“In deference to the General Assembly, we necessarily stop short of providing a complete and precise definition of what must occur to qualify as a reading of the bill, but we are well-settled in the conviction that what occurred here falls far short of the requirements,” Venters wrote.
The unanimous high court decision is a resounding defeat for Republican Gov. Matt Bevin and GOP legislative leaders, who have argued that an overhaul of Kentucky’s pension systems is essential for eliminating the state’s $37.9 billion public pension shortfall, which is one of the nation’s worst.
Bevin blasted the ruling in a prepared statement as “an unprecedented power grab by activist judges.” He said it “will destroy the financial condition of Kentucky” and “force our state to deal with further credit downgrades and increased borrowing costs for cities, counties and school districts.”
“This is a sad day for Kentucky,” Bevin later told reporters at a news conference. “It’s a sad day for anybody who hopes to retire after years of government employ. It’s a sad day for the rule of law. It’s just a sad day, it really is.”
The decision was an equally large victory for opponents, led by Democratic Attorney General Andy Beshear, who say the public pension plans gradually will strengthen if the state simply sticks with its new-found commitment to full funding after roughly two decades of under-funding. And they say Bevin failed to show exactly how cuts in retirement benefits would produce the billions in savings that he touted.
“Today’s unanimous ruling is a landmark win for every teacher, police officer, firefighter, social worker, EMS and all our hardworking public servants,” said Beshear, who is running for governor next year. “It fully and finally voids the illegal cuts to their retirement and clearly states that the governor and General Assembly violated the Constitution.”
The 291-page pension law, passed during the 2018 General Assembly’s final days, would have placed Kentucky teachers hired after Jan. 1 in a less generous hybrid cash-balance plan rather than their traditional pension plan, shifting more responsibility for saving onto teachers. Current teachers also could not count payments for sick leave days accumulated after Dec. 31 toward their retirement benefits.
For state government workers enrolled at Kentucky Retirement Systems — who have been placed in hybrid cash-balance plans since 2014 — the law would have restricted their ability to count sick leave toward retirement benefits after July 1, 2023. And a state employee who retired after Jan. 1 and returned to a state job no longer could have opened a second retirement account at KRS.
State retirees also would have lost a $5,000 death benefit, payable to a designated beneficiary.
The pension law was only part of the state’s efforts to grapple with the pension shortfall. Prodded by Bevin, the legislature agreed to fully fund the pension systems for state workers and teachers for the first time in many years in the two-year budget that it passed. However, without substantial sources of new revenue, that meant diverting hundreds of millions of dollars from education, social services, infrastructure and other state spending items.
The proposed changes in public retirement benefits were controversial enough to draw thousands of protesters to the state Capitol throughout the legislative session, many of them current or retired teachers. Lawmakers made several concessions, such as dropping a plan to reduce cost-of-living adjustments on pensions for retired teachers, who do not collect Social Security benefits in Kentucky.
The day after Bevin signed the pension bill into law, Beshear, along with the Kentucky Education Association and the Kentucky State Fraternal Order of Police, filed suit against it in Franklin Circuit Court, saying it was unconstitutional. Beshear later announced that he will run for governor next year, challenging Bevin if he wins the Democratic primary.
Franklin Circuit Judge Philip Shepherd ruled on June 20 that the legislature violated the Kentucky Constitution by approving the bill without giving it the proper number of public readings and not getting the support of a majority of all members in the House, which is required for bills that appropriate money.
“The wholesale violation of (the Constitution) is a threat to the integrity of the legislative process, and it undermines respect for the rule of law,” Shepherd wrote.
In his June ruling, Shepherd did not consider whether the law violates the state’s “inviolable contract” with teachers and other public workers, which was one of the points raised in the suit. The inviolable contract includes various state laws that protect benefits promised to public workers.
The Supreme Court on Thursday said it was not ruling on the substance of the pension changes, and unlike Shepherd, it was not delving into the question of whether the bill dealt with appropriations and had the constitutionally required majority of votes for approval.
House Republican leaders and the Republican Party of Kentucky swiftly criticized the high court for what they described as improper interference with legislative business. The last-minute act of replacing the contents of one bill far along in the legislative process with language from another is common procedure in every state legislature in the nation, the GOP leaders said.
“The chaos the Supreme Court’s overreach into the legislative branch has brought upon the legislative process will have ramifications far beyond SB 151, imperiling hundreds of bills passed using the same process and bringing a grinding halt to the ability of the General Assembly to pass compromise legislation late in the session,” state GOP chairman Mac Brown said in a statement.
Anticipating this backlash, the Supreme Court said in its opinion that one of its key responsibilities is to interpret state laws and decide whether those laws meet the demands of the Kentucky Constitution.
In this case, the court said, Section 46 of the Constitution calls for three public readings of a bill — at least, its bill number and title — before passage. With the pension bill, the readings were for “an act relating to the local provision of waste-water services,” which is not what the final bill actually was about, the court said.
“Our review of Section 46 simply follows our normal rules of constitutional construction,” the court said.