Gov. Steve Beshear and leaders of the General Assembly were extravagant in their praise of each other late Tuesday night after both chambers approved changes to the state retirement system and revenue measures to fill its $33 billion hole.
We agree there's reason to celebrate. For years policymakers were unwilling to acknowledge that $33 billion wouldn't simply appear from stock market gains or a gonzo economy.
That magical thinking finally gave way to reality as the parties came up on the very last day of the session with a complex set of changes and tweaks to the tax code that are supposed to raise almost $100 million a year to make up for the shortfall while claiming the whole deal is revenue neutral.
They also changed retirement for people entering government after Jan. 1, 2014, moving from a defined benefit, a traditional retirement, to a hybrid system of individual accounts that the state guarantees will grow at least four percent each year.
Digital Access For Only $0.99
For the most comprehensive local coverage, subscribe today.
The formula to raise the money without really raising taxes is essentially this: Improved collections will account for a third of the money; another third will arise from changes in the federal tax code; and the final third will come from reducing a tax credit, but that will be offset by providing another credit.
This last is hard to understand but what it boils down to is this: the General Fund profits from the credit that's reduced, while the road fund is hurt by the credit that's given. So, in essence it's $34 million shifted from roads to retirement.
There was bipartisan concern from Reps. Jeff Hoover, R-Jamestown and Derrick Graham, D-Frankfort, that future governors and legislators could backslide and underfund retirement to balance future budgets. "You know and I know what will happen," Graham said. When push comes to shove and legislators need more money for pet projects, the retirement fund could be shortchanged again. Beshear thinks the hard work to get this far plus the heightened public awareness of the pension fund will prevent future shortchanging.
In that regard, one of the reforms built into the system under this legislation is a Public Pension Oversight Board, administered by the Legislative Research Commission, to keep an eye on the pension system and its governing board. Another set of eyes on this huge public fund is a good idea.
There will be plenty to keep an eye on.
Many serious observers, including current and retired state employees, the AARP and others, questioned whether the state will save any money with the hybrid plan, saying it could be more costly for both the state and employees.
The Pew Charitable Trust experts who advised the task force recommended the hybrid system in part because they said it will make government work more attractive to younger people.
This is and always will be a huge issue. It affects the financial stability of tens of thousands of Kentuckians and the economic stability of the state.
It's fine to celebrate the accomplishments of this session. But equally important is resolving that these issues — assuring that $100 million will make it into the fund each year; assessing the economic viability of the new, hybrid system, and evaluating its impact on attracting and retaining works — will not fall by the wayside.