FRANKFORT (AP) — Republican Gov. Matt Bevin says Kentucky’s two-year spending plan must go “beyond break even,” calling for the state to generate more money to fix the multibillion-dollar pension shortfalls that threaten the livelihoods of hundreds of thousands of public workers, teachers and police.
But Bevin, preparing to deliver his first budget proposal to lawmakers in a televised speech Tuesday, said in an interview with The Associated Press that his solution will not raise taxes. Instead, Bevin said his plan will include sweeping what he called “found monies,” including unexpected windfalls from lawsuit settlements and judgments, into the retirement systems. He pointed to the unprecedented $870 million a judge has ordered an online poker company to pay the state as an example. That judgment is being appealed.
With every extra dollar going to the retirement system, that means other programs might not get the increases they requested or, in some cases, could have their budgets cut.
“I am doing intentionally the least amount we can do,” Bevin said about his proposed cuts. “I’m trying to solve this problem a step at a time. But it’s going to come not by dumping everybody on their ear.”
Kentucky has one of the worst-funded pension systems in the country. Moody’s, a national credit rating agency, says Kentucky’s liability is nearly twice as large as the money it brings in every year. While the state’s tax revenues are growing — with economists predicting the state will have an extra $900 million to spend over the next two years — any gains are being wiped out by the pension problems.
The Kentucky Teachers’ Retirement System needs an extra $1 billion over the next two years just to stay afloat in the long term. That does not include state workers and police officers in the Kentucky Employees Retirement System and the State Police Retirement System, which are facing their own cash crisis and need a combined $320 million over the next two years. For every dollar taxpayers pay state workers in salary, they have to put nearly an additional 50 cents in the retirement fund.
“While you can’t afford to do it, you can’t afford not to do it. And that’s the difficulty,” Bevin said about paying the full amount to the pension systems. “I do intend to address the … problem.”
The problem is most acute with teachers. The legislature made sweeping benefit changes to the retirement systems in 2013 that, over time, will lessen the problem. But no such changes have happened for the teachers’ retirement system. With the stock market continuing to fall, retirement officials are forced to sell undervalued investments just to make benefit payments. This year, the teachers’ retirement system has sold $750 million in assets to stay afloat, and it is projected to sell $850 million next year.
“You want to buy low and sell high, and right now we’re selling low unfortunately,” said Beau Barnes, general counsel for the Kentucky Teachers’ Retirement System. “We’re being forced to (sell low) just to pay monthly retirement benefits.”
State Democratic leaders, including House Speaker Greg Stumbo, say the smart thing is to not try and pay the full amount with state tax dollars. Instead, they want to take advantage of low interest rates and borrow $3.3 billion to make those payments over the next eight years. That would give lawmakers time to come up with a more permanent fix.
“Interest rates are still really good and, you know, why stop the momentum we have in other parts of the budget if we don’t have to,” said Democratic Rep. Rick Rand, chairman of the House budget committee.
But Bevin and other Republicans have flatly rejected the idea, saying it is not wise for the state to go into debt to pay off other debts.
“The solution which keeps coming from the other side is to borrow money from the future and stick it to those young people, let them figure out how to pay for it.” Bevin said. “That’s a bad, bad solution. Because truth be told, most of them won’t be here anymore. They’ll be in another state paying taxes.”
While lots of people will be anxiously watching Bevin’s speech Tuesday, the state’s 47,000 retired teachers could have the most at stake.
“They are being told that if nothing is done in 21 years, the system is broke,” said Bob Wagoner, executive director of the Kentucky Retired Teachers Association. “If I’m 100 years old, I figure I might beat the odds. But if I’m 65 years old, potentially I might still be around (in 21 years). I might be 86 or so. That’s kind of a tough time to go looking for a job.”