I heard an interesting interview recently. Radio show host Terry Meiners interviewed former Gov. Steve Beshear regarding his recent book release. Beshear told Meiners that he has a horse named Magic. He also appears to believe that magical thinking can be used to resolve the thorniest problem our commonwealth has ever confronted: pension debt.
Over the past decade, payments to our pension plans have grown from $573 million to $1.6 billion annually. This represents going from 5.4 percent to 13.8 percent of the annual budget. Many attempts at reform over the past decade have been made, but none have been enough to stop the financial tsunami that is now upon us.
In 2013, as a freshman senator, I worked closely with Senate Majority Leader Damon Thayer and Beshear to help pass Senate Bill 2, the most sweeping pension reform the commonwealth has ever seen. However, due to pressure from the House, it was not sufficient to stem the financial tide.
You can imagine my disappointment when I heard former Gov. Beshear, who knows full well the details as to why we are in this mess, trying to downplay the nature of the pension problem saying “... this is a game…”
His rhetoric is an attempt to turn this most urgent problem into a partisan whirlwind. I can assure you that there is nothing less partisan than our pension debt and an unfunded liability in excess of $45 billion that falls to all taxpayers is not a game.
Given his rhetoric, I feel compelled to give a refresher course of how we have arrived at this problem.
We know that over 20 percent of the unfunded liability is related to budgets that recommended by governors and approved by general assemblies that did not fully fund the commonwealth’s required contribution. The total dollar amount of the underfunding of the pensions was $3.74 billion. Of that amount, Beshear authored budgets that underfunded $3.26 billion, or 87 percent, of the total problem.
Further, we know that nearly 25 percent of the unfunded liability is due to faulty assumptions on payroll growth. Those assumptions were set by an actuarial firm and then approved by a board that was comprised of many members appointed by Beshear.
Those appointees included his own personnel secretary who is now in federal prison after pleading guilty to accepting bribes and illegally contributing to campaigns, including the campaign of now Attorney General Andy Beshear. How could the governor’s personnel manager not know to stop and ask why payroll numbers were incorrect? One can only surmise that he was shielding the governor from tough choices. Or maybe he too believed that the magic money tree would fix the problem.
We also know that 15 percent of the unfunded liability is due to the system failing to meet its projected rates of return. This is like the return you expect on your 401(k) and is the largest factor in the success or failure of a pension system.
When they failed to meet this number year after year, did Beshear’s appointees fire the director of the system or hold him accountable? No, they gave him a 25 percent raise. After all, it’s just a magic game, right?
Recently, Moody’s downgraded the commonwealth’s credit rating, saying that, instead of the $37 billion in unfunded liabilities that Beshear’s board reported, the real number is more like $70 billion, which happens to be the number that Gov. Matt Bevin and the current board believe is more accurate.
Beshear stated in his interview that if he was in charge of the system, he could, “... make us look the best in the country or the worst in the country.” I’ve got a better idea. How about those who know the truth but hide from it get on a horse named Magic and ride back out of town and allow those of us who deal in reality to get to work.
Kentucky Sen. Chris McDaniel is chairman of the Senate Appropriations and Revenue Committee.