With roughly two weeks of working days left, time is running out for the Kentucky General Assembly to provide a much-needed remedy for the state’s critically ill pension systems.
The lack of action to date only heightens the alarm that Kentuckians, including the Kentucky Chamber, are feeling about the financial crisis that threatens the future prosperity of Kentucky and its citizens.
This crisis — and it certainly warrants such a description — is the result of $36 billion in the pension systems’ unfunded liabilities, the difference between the value of pension benefits the systems owe and the assets they have on hand.
Kentucky’s systems are among the worst-funded in the nation, with only Illinois being ranked lower.
Looking at it on a per-person basis, if all 4.3 million Kentuckians were asked to pitch in to fix this problem, every man, woman and child in the state would have to pay $8,268.
While that is a dramatic way to illustrate the problem, the more immediate impact is being felt in how much the state must pay in interest when it sells bonds to finance important public projects such as schools and highways.
We just saw more evidence of this when Standard & Poor’s lowered the credit rating of the Kentucky Turnpike Authority’s bonds on March 4 — just ahead of a $216 million sale. The situation is similar to our personal credit rating. If our scores are low, we have to pay higher interest on any money we borrow.
The 2016-18 state budget will be key to starting to fix the problem, and we have called on the legislature to provide funding that will begin improving the systems’ financial health.
If the usual pattern of legislative action is repeated this year, the final passage of the budget is unlikely to occur before the final days of the session.
But there are other areas the lawmakers could address immediately. For example, Senate Bill 2 includes several elements that could improve the operations of the retirement systems by requiring more transparency and accountability, including fees and transactions with outside vendors.
The bill would bring the pension systems under the state’s model procurement code. That would make them subject to ethics laws, anti-discrimination rules and contract review — all positive changes.
The chamber has also called for other steps to improve operations, transparency and funding levels. These include:
▪ Comprehensive performance audits of the retirement systems.
▪ Requiring the systems to clearly report investment returns minus the fees paid to make the investments.
▪ Requiring the governor and General Assembly to clearly report whether the budget they propose and enact adequately funds the systems.
▪ An annual report from the legislature’s Public Pension Oversight Board, prepared with the assistance of independent experts, that analyzes the operations of each system.
We recognize that there is no quick fix to this problem that has been developing for years. But failing to act now will only mean the crisis will deepen, and the state and its citizens will be forced to pay an even bigger tab.
Dave Adkisson is president and CEO of the Kentucky Chamber.