Former KRS Trustee watching for counties and cities to declare bankruptcy under proposed pension plan

10/26/2017 01:56 PM

By shifting debt towards counties, cities and school districts the state could be looking at reducing billions in pension liabilities through bankruptcy, something the state itself can’t declare, said former Kentucky Retirement Systems board member Chris Tobe.

“The only way to cut a pension legally is in the bankruptcy process; states cannot go bankrupt, but counties, cities can — so I think that’s kind of a background thing that may be going on is a shifting of these liabilities to places where they can bankrupt or they can actually cut the pensions legally,” Tobe said in an interview on Pure Politics.

Tobe did agree with some of the changes proposed by Gov. Matt Bevin and Republican legislative leaders including moving to a level-dollar funding method of paying the pension liabilities, totaling some $64 billion, according to Bevin’s administration.

The former trustee likened the push for level-dollar funding as ARC+ for the teacher’s plan, and said the idea is “great” if Kentucky can afford to budget that amount.

“I think it sets up the worst budget crisis that we’re going to have in our state,” Tobe said, adding that Illinois faces a similar problem and struggles to pass a budget.

A lot of what the pension crisis is trying to solve is the Teacher’s Retirement System plans, Tobe said the state says the plan is 56 percent funded, the GASB or Government Accounting Standards Board has the plan at 35 percent funded, and Moody’s has the plan at 32 percent funded, he added.

“No one wants to talk about the funding ratio, they just talk about it in the aggregate, because if you do that then this ARC we have to come up with here even becomes a larger nut to crack in the next budget,” he said. “So, that is the big, big issue here and that is that the Teacher’s [plan] is probably the third or fourth worst funded pension in the United States.”

Tobe speculates that the special session and the “Keeping the Promise Plan” has a lot of politics associated with it, in an effort to “drive a wedge between the people in the Teacher’s and try to create a more confrontational environment there.”

Parts of the plan, Tobe said are “clear violations” of the inviolable contract. Watch the entire interview below with more of his thoughts, including where he sees Wall Street involved in the pension problem.


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