Kentucky looks to ease local governments’ pension pain

February 27, 2018

FRANKFORT, Ky. (AP) — Taylor Mill, a city of about 7,000 people just across the river from Cincinnati, has 45 employees that account for most of the city’s $5.2 million budget that includes an 80-acre park, a 12-person police force and an annual Easter egg hunt.

But beginning July 1, the city will have to pay an extra $710,000 to the state retirement system on behalf of its workers. The 60 percent increase, which by itself accounts for more than 13 percent of all city spending, is one of the highest increases in the state and part of Kentucky’s efforts to save one of the nation’s worst-funded public pension plans.

But local governments like Taylor Mill have complained the increases are too steep and would require them to either raise taxes or drastically cut services. To avoid that, lawmakers have proposed phasing in those payments over the next decade. Instead of paying it all at once, cities would pay 12 percent increases each year until they have fully funded the required increase.

“That’s a big deal for us,” Taylor Mill Mayor Dan Bell said. “It will allow us to handle it a lot better.”

Kentucky is at least $41 billion short of the money required to pay retirement benefits over the next 30 years to state workers, police officers, firefighters, public school teachers and local government employees. That debt soared last year when state officials adopted gloomy assumptions predicting Kentucky would make much less from its investments than it had previously planned. Taxpayers have to make up the difference.

Kentucky’s Republican leaders have committed to fully funding the state’s pension system, no matter what it costs. Gov. Matt Bevin’s proposed two-year spending plan would spend $3.3 billion on the pension system and impose cuts of more than 6 percent across most of state government to pay for it. But Senate bill 66 would give local governments more time to make their share of the payments.

“I’m more concerned about the ability of local governments to deliver basic services right now,” said Republican Sen. Chris McDaniel, chairman of the Senate Appropriations and Revenue Committee whose district includes Taylor Mill.

In addition to giving local governments more time, the bill would let some entities exit the pension system altogether. Kentucky’s pension also covers employees for hundreds of “quasi-governmental agencies,” including rape crisis centers and regional mental health centers. Some of those agencies have been overwhelmed by pension increases in the past few years, but have been unable to leave the system without paying a hefty fee to cover their share of the unfunded liability.

The proposal would give some of those entities 30 years to pay off that fee. It would also apply to some state universities.

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