The pension imperative

Jim Waters Published:

Like ugly, entrenched weeds overtaking plush gardens, Kentucky’s $34 billion unfunded public pension liability now dominates all budget decisions – not only in Frankfort but also in Kentucky’s 418 cities.

State political leaders have made it clear they are willing to sacrifice human capital before allowing the fiscal realities of the commonwealth’s pension debt to crowd out costly pet projects – or their own opulent retirement benefits.

Giving state workers unpaid furlough days without raises or cost-of-living increases while still finding $122 million to pay for 70 new courthouses reveals that politicians assume plenty of flexibility in how they spend our tax dough.

By fiddling away while the pension crisis spins uncontrollably, most state lawmakers and our caretaker governor demonstrate little urgency for the predicament faced by their brethren toiling in local governments.

While Frankfort holds task force meetings that largely avoid dealing with tough issues like politicians’ pensions, a lack of transparency, reforming pension-oversight boards and eliminating benefit creep, local leaders frantically search for Mary, because they’ve already robbed Peter to pay Paul.

Mayors find her outside police and fire stations where deep cuts in spending on public safety await. They also find her waiting at city managers’ offices as layoffs loom – all so local governments can make their mandated pension payments.

I witnessed this firsthand at a recent Covington City Commission meeting where “Mary” was “found” in the city’s firefighting budget as nine positions went up in budget-cutting flames in order to achieve $500,000 in savings.

Separate the final outcome from the reason for them, and all is not bad news. Financial distress is forcing communities to cut unnecessary spending.

The budget-cutting process revealed that Covington’s fire department spends 65 percent more than departments from other similar-sized cities. Duplication of services also was eliminated as the city and Kenton County merged 911 emergency-dispatch services, saving the city $1 million annually.

While such actions appeal to fiscal conservatives, the motivating force behind them drowns at least some of that elation.

In their presentation to commissioners, Covington fire officials pointed to the city’s pension costs as a driver of the cuts. But they also rightly blamed state legislators for why commissioners are in their current predicament of deciding not if – but which – services citizens will do without.

A contemptible irony of Kentucky’s retirement systems is that the state is not legally bound to fully make its promised pension contributions, yet locals are forced to pay up at rates the General Assembly establishes.

The current state budget requires cities to put aside an equivalent of nearly 40 percent of hazardous duty workers’ salaries and 20 percent of non-hazardous employees’ salaries into the County Employees Retirement System (CERS).

Steve Frank, a certified financial planner by day and Covington city commissioner by night, calculated that means local governments must pay an additional $24,000 to fund pension benefits for hazardous duty workers with $60,000 salaries.

To make its payments, Frank said Covington had to “skimp on maintaining our streets, roads, sewers, and levee system.” It all adds up to a $35 million deferred maintenance bill, “and is why the roads and city look the way they do.”

Many other local leaders tell similar stories.

Even after all their cuts, Covington still is able to fund only half of the estimated $7 million needed to keep its infrastructure from further crumbling.

Local leaders and citizens across the commonwealth are shaking their heads in frustration.

What’s more, even after all the scrimping, scraping, cutting and slashing, the CERS pension plan remains only 58 percent funded and faces a $6.8 billion shortfall.

Firefighters, mayors, commissioners, judge-executives and magistrates wonder: When will lawmakers weed this overgrown budgetary garden?

Jim Waters is acting president of the Bluegrass Institute.

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  • You are correct sir. The "Institutes", "Foundations" and other "think tanks" usually are outside financial interests and are friends of no one in Kentucky. This paper caters to them rather than have real reporters and information.

  • The Bluegrass Institute just recently released a document attacking the retirement plan of the legislature. In that same document, they also took some swipes at state employment. Notably, the document says, "Even government workers in Kentucky do not dispute that they are generously compensated." To prove this point, it cites a quote from 2001 by the president of the Coalition of State Employee Organizations (whatever that is), who apparently said that state employee compensation are "the best in the nation, second to none." Nevermind that this 2001 quote was used in a 2012 document, and that it wasn't mentioned in the main body of the document that the quote was 11 years old (it was only noted in the footnotes). It was still left in to prove their point that government is wasteful, and overcompensated state employees are part of the problem. It's ironic that now this same organization appears to be trying to appear sympathetic to state employees... in a Frankfort newspaper, where the majority of state employees work and live. The bottom line is that the Bluegrass Institute isn't our friend either, fellow state employees. Beware who you decide to believe in. We're out there on our own, without representation OR support, especially from organizations like this.