House could vote on pensions by Wednesday

By Kevin Wheatley Published:

The House could vote on a pair of bills related to public pension reform as early as Wednesday, House Speaker Greg Stumbo said.

One piece of legislation is a substantially amended public pension reform bill. The other would create a trust fund for pension contributions.

The two bills moved through House committees Tuesday, with both votes splitting along party lines.

Rep. Brent Yonts, a Greenville Democrat and chair of the House State Government Committee, presented an amended version of Senate Bill 2 that would keep state workers in a defined benefit pension plan. The bill originally called for a hybrid cash balance plan for new hires, legislators and judges.

The amendment passed by a party-line vote of 14-10 in the committee Tuesday. The bill as amended passed 17-1 with 10 Republican representatives not voting.

House Democrats are proposing a funding stream for future pension contributions. House Bill 416, sponsored by Stumbo, would dedicate funds from expanding games offered by the Kentucky Lottery and pari-mutuel taxes on Instant Racing, should the game’s legality be upheld by the Supreme Court.

Stumbo, D-Prestonsburg, laid out HB 416 during a meeting of the House Appropriations and Revenue Committee, which passed the legislation by 17-0 with 11 GOP representatives not voting.

Senate Republican leaders criticized the moves Tuesday.

“They have gutted the bill,” Senate Majority Leader Damon Thayer, R-Georgetown, said. “They have gutted the recommendations of a bipartisan task force that reached a consensus compromise.”

The House proposal would “gamble the future of our pension obligations on various new lottery games and a horse racing wager that hasn’t been codified by the legislature or approved by the Supreme Court yet,” he said.

Senate President Robert Stivers said the changes to SB 2 could jeopardize appointing joint task forces to examine issues in the future.

“There is no confidence in ever doing any type of joint venture to try to resolve problems,” Stivers, R-Manchester, said.

SB 2, which mirrors recommendations from the Task Force on Kentucky Public Pensions and passed the Senate 33-5, called for switching to a hybrid cash balance plan for new state workers, legislators and judges starting July 1.

It also mandates full actuarially required contributions to Kentucky Retirement Systems starting July 1, 2014, which is expected to cost about $100 million in General Fund dollars.

Along with keeping the state’s defined benefit pension plan, the amended bill would retain cost-of-living pay raises for retirees, but mandate they be pre-funded by the state or Kentucky Retirement Systems before they are granted.

The House version of SB 2 would also establish an 11-member Public Pension Oversight Board that would review and analyze pension benefits, funding and investments. The state, under the House version of SB 2, would have the flexibility to modify benefit factors and retirement eligibility for new hires as long as full actuarially required contributions payments are made for five years.

Yonts said the proposed hybrid cash balance plan could cost an additional $54 million over 20 years. He said an influx of cash should help drive down more than $18 billion in unfunded liability in Kentucky Retirement Systems.

“The first way to solve the problem is to fix the problem we created, and that is put the money in the pot,” he said. “If you don’t put the money in the pot, it will collapse, and that is exactly what happened.”

Rep. Derrick Graham, D-Frankfort, said some who served on the task force and voted for the recommendations did so to start the legislative process.

He said he had problems with the recommendations but wanted every General Assembly member to have a say in developing a reform plan and how to fund it.

The House’s proposed funding mechanism would create a KRS sustainability trust fund, which would generate revenue from 1.5 percent pari-mutuel taxes on Instant Racing wagering above $300 million annually and expanded Kentucky Lottery games like Keno and online lottery.

The lottery expansion would maintain the Kentucky Educational Excellence Scholarship program’s 2014 funding levels and allow up to 2 percent growth annually, Stumbo said.

HB 416 would take three to five years to consistently raise about $100 million annually, according to Stumbo. The General Fund would largely fund pension contributions under proposed reforms initially, he said.

The Kentucky Supreme Court voted in January to review a case questioning the legality of Instant Racing, which allows bettors to wager on previously run horse races and is offered at tracks in Franklin and Henderson.

About $300 million has been bet on Instant Racing machines at Kentucky Downs and Ellis Park since September 2011, Stumbo said, noting he expects the high court will find the game legal.

HB 416 is projected to generate $105.5 million for the pension trust fund in the upcoming biennium and grow to $183.7 million by 2020-2022, Stumbo said.

Those numbers could increase significantly based on a horse racing industry study showing $1.5 billion would be wagered annually on Instant Racing machines if the game expands to other tracks, he said.

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