House Democrats prefer new pension funding from Keno, instant racing; Will reject hybrid pension plan

02/25/2013 06:02 PM

The House Democratic majority decided Monday to set up a trust fund to cover additional pension payments that will rely on income from the Kentucky Lottery Corporation setting up Keno and eLottery gaming, as well as from instant racing if the courts uphold it.

The lottery expansion will take several years to ramp up and the Supreme Court still must rule on the constitutionality of instant racing — or historical racing — that allows patrons to bet at video terminals on previously run races. But House Speaker Greg Stumbo said the goal is to bring in $1 billion over 10 years into the trust fund that would be dedicated to helping Kentucky pay its full share into the financially beleaguered Kentucky Retirement System.

The proposal is a change from what Stumbo suggested Friday in which the state would apply a 6 percent sales tax to lottery tickets. Stumbo, at the time, also said he didn’t expect instant racing to be part of the final funding plan. All that changed after House Democratic leaders outlined the options to the full majority caucus of 55 House Democrats on Monday evening.

“We’ve been trying to put together a package we could gain support for,” Stumbo said in explaining the fluid plans.

Stumbo said Democratic leaders think they have it and will present it Tuesday during the House Appropriations and Revenue Committee meeting.

The instant racing revenue, should the game spread to the other horse race tracks that don’t currently have it, would bring in about $25 million a year once it’s fully up and running, Stumbo said. And the expanded lottery games, he said, would cover the rest of the estimated $100 million per year the state needs to make its full payment into the Kentucky Retirement System since 2002.

Former Gov. Paul Patton tried to legalize Keno through executive order in 2003 before backing off amid criticism. Stumbo said House leaders have spoken to the Kentucky Lottery Corporation leaders who have agreed to move forward on it. The eLottery system allows individuals to create online accounts to play — and pay for — existing lottery games, which Stumbo said will broaden the pool of lottery players and increase sales.

At the same time, House Democrats also want to walk back a major tenet of the Senate’s pension reform bill, SB 2, and the legislative task force on pensions that called for setting up a new cash-balance or “hybrid” plan for new state, county and city worker pensions. That plan would require state employees to kick in 5 percent of their salaries and the state 4 percent of that amount into an account that would guarantee a return of at least 4 percent.

But Stumbo said Democrats were uncomfortable with an actuarial report submitted to the Legislative Research Commission that showed the hybrid plan, as constructed would cost the state $55 million more over 20 years than than the cost of the current system of pension checks based on a calculation of workers’ highest three years of salaries and their years of service.

“It doesn’t make any sense to pay $54 million extra or whatever it is,” Stumbo said.

The additional money is mostly caused by a provision that would allow the retirees to collect up to 7.75 percent in interest during good times, which would reduce the amount the fund could have to invest.

Senate Republican Floor Leader Damon Thayer, R-Georgetown, said earlier in the month that the extra cost represented just .02 of the fund and shouldn’t derail the bipartisan agreement for pension reforms that passed the Senate 33-5 in early February.


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