Lawmakers will face a bevy of options to resolve KTRS funding issues as Dec. 1 deadline looms

11/18/2015 09:06 PM

FRANKFORT — When the General Assembly convenes in Jan. 5, it will probably not have a concrete proposal to consider on one of the most pressing issues facing lawmakers — resolving the funding shortfall of the Kentucky Teachers’ Retirement System.

Kentucky Chamber of Commerce President Dave Adkisson, a member of the 23-member workgroup created by Gov. Steve Beshear and tasked with recommending a method to bridge the funding shortfall at KTRS, said Wednesday that legislators will instead receive “a shopping list of options with price tags.”

The workgroup’s deadline is Dec. 1, a week before Beshear leaves office.

“The range of perspectives among the 23 members is pretty broad,” Adkisson told the Interim Joint Committee on State Government. “I think you’ve got folks there who just say the legislature ought to pay the bill and that probably involves new revenue, so you ought to raise taxes and let’s get on with it.

“Then you have some there who’ve said, ‘Well, let’s borrow $3.3 billion, use that money to leverage the market and get some relief from the fact that interest rates are low.’”

KTRS, which faces some $14 billion in unfunded pension liabilities, backed such a bonding plan, which passed the Democrat-led House of Representatives but stalled in the Republican-controlled Senate in this year’s session. The two side could not hammer out an agreement.

Others, Adkisson said, favor transitioning future teachers to 401(k)-style defined-contribution plans, such as Gov.-elect Matt Bevin. Adkisson noted that new teachers would have to be covered by Social Security, “plus you’d have to go back and somehow fix the underfunding of the current system.”

Adkisson has since asked the workgroup’s consultant, William “Flick” Fornia, to draft a so-called “50-50” proposal, wherein half of the funding solution was achieved through new revenue and the other half through restructuring pension benefits for new hires.

Fornia also floated a “curveball,” according to Adkisson: a 12-year phase-in for full actuarial pension contributions. KTRS officials have said they plan to request such funding in the amount of $520 million for fiscal year 2017 and $488 million in fiscal year 2018.

But Adkisson cautioned that bond-rating agencies may look at such a proposal as a soft fix for KTRS’s funding woes, adding that a bond rating downgrade will likely occur without a resolution to pension underfunding in next year’s session.

“They want firm plans,” Adkisson said, referencing bond-rating agencies. “So if our plan is to staple a 12-year graduated deal to our legislation this time and say, ‘We really, really promise to keep doing this,’ will they accept that?”

“Also, and this is a key point I think, I think that plan, we would have to question does it really address the demographic changes and the structural problems with a plan that was created in 1938,” he added.

Sen. Joe Bowen, an Owensboro Republican who chairs the Senate State and Local Government Committee, said some lawmakers would have liked to see a definitive proposal emerge from the workgroup, “but that’s not what we’re going to get.”

He said he believes the General Assembly will pass a resolution to KTRS’s funding shortfalls, despite a round of contentious legislative races on the horizon next fall and the snags that kept lawmakers from agreeing on a compromise this year.

“At the end of the day, we’re all charged with the responsibility of promoting good public policy, and members of this legislative body are going to have to do some soul searching and they’re going to have to decide which is more important: resolving this issue or doing the most politically expedient thing,” he said. “And so my charge to them is look, you’ve got to get on board with what is perceived to be good public policy.

“Lay your election aside, and let’s do what’s right for the teachers — the ones that are retired, the ones that are working and future teachers — and let’s do what’s right for the taxpayers of Kentucky.”

Correction: A previous version of this report indicated that the KTRS funding workgroup had requested Fornia draft the so-called 50-50 proposal.


Subscribe to email updates.

Subscribe and get the latest political intelligence delivered to your inbox.