Raise taxes, fix pensions

Crisis is an overused term but it surely applies to the status of pension funds for most Kentucky state workers and public school teachers.

Still, in the early days of this legislative session, as newly-elected Gov. Matt Bevin prepares to reveal his proposed budget for the next two years, the people who must solve this crisis are arguing over stupid things. They need to move on and deal with the real issues.

On the Democratic side, Rep. Brent Yonts, Greenville, chairman of the House State Government Committee, renewed his opposition to increased transparency about pension benefits.

Among Republicans, Senate Majority Leader Damon Thayer, Georgetown, articulated the equally untenable position that “structural changes” and cutting out fat in government will somehow make the numbers work.

Bevin himself seems to believe a combination of converting the state system to a 401(k) plan and slashing state budgets will make up the shortfall.

If Bevin and lawmakers of both parties are sincere about their promises to fulfill obligations our state has to hundreds of thousands of current and retired state employees and teachers then they’ve got to do the hard, unpopular work of raising taxes to make these pension funds whole.

Reality check one: The intractable math of this problem demands additional state revenue to solve it while maintaining essential state services.

Over half, 56 percent, of Kentucky’s $10.2 billion General Fund goes to education. Another 11 percent goes to the criminal justice system. Since 2008, $1.7 billion has been cut from state budgets, a stunning disinvestment.

No matter who does the math, that doesn’t leave enough money to fix the pension systems. The Kentucky Retirement Systems is $11 billion short on its anticipated obligations. The Kentucky Teachers Retirement Fund is underfunded by $24.4 billion.

Reality check two: There is no case to be made for keeping secrets about either the public pensions people receive or the way the systems are managed. The public deserves to know when former legislators and a few select others get rich pensions because of special deals enacted for them. Likewise, taxpayers deserve to know more about how the systems operate, who they pay to manage money and how much they pay them.

Reality check three: The pension systems are not unsustainable. Thayer’s “structural changes” and Bevin’s 401(k) are code for “we can’t keep giving these people such rich retirement benefits.” But they deny the reality that the systems are in this shape because the state failed to meet its obligations as the employer, not because retirees get huge benefits.

A quick review: The teacher and state government pensions are defined benefit plans, meaning workers are guaranteed pension payments based on their compensation and years of service. Workers’ contributions are deducted from their paychecks, while the state, like private sector employers, is obligated to contribute its share. The two revenue streams go into a big pot of money invested to make it grow. This worked for years. In 2001 the state retirees’ system was 125 percent funded.

With that surplus Gov. Paul Patton and the General Assembly, facing a tough budget, decided to shift about $30 million from the retirement fund to other needs. And that was just the beginning. Governors, Democratic and Republican, continued to shortchange the funds, taking out hundreds of millions.

The reduced state share meant less to invest and so lower earnings. When the Great Recession of 2008 hit, that 125 percent funding had shrunk to 52 percent. The funds lost even more as the markets got hammered. Today, KRS has a 17 percent funding level while KTRS has only 42 percent of what it’s projected to owe future retirees.

It’s reasonable to consider changes to the pension systems, such as increasing years worked and the minimum age before drawing benefits. But there is no way Kentucky will meet its obligations to retirees and workers without raising new tax revenue.