Phil Moffett calls for redirecting spending from 'inefficient' education and health programs to fund pensions

Kentucky’s first step to sound financial footing should be to redirect a substantial part of spending currently tagged for education, health and social programs to pay into the public employee pension system before it takes the state under, Phil Moffett said.

The tea party activist and prospective Republican candidate for governor in 2015 said the unfunded liability in the pension program represents the biggest threat to Kentucky.

“We spend about $9 billion a year, and we spend a lot of it very inefficiently,” he said. (4:40). “All of those systems … are grossly inefficient. We have school systems now where less than 50 percent of the dollars spent are actually in the classroom. We’ve built bloated bureaucracies at the central office or the school board level. And those types of things can be whittled down to common sense levels.”

To reform the system, Moffett also said the state needs to block people from being able to collect multiple pensions. (1:30) And he said lawmakers must repeal a 2005 law that allows legislators who have served — or will serve — in other jobs elsewhere in government to combine their time of service in the General Assembly with their highest three years of salaries for pension purposes.

“That’s an obscene idea,” he said of that provision, known as “reciprocity.” (2:00)

On Monday, the free-market think tank the Bluegrass Institute for Public Policy Solutions released its latest report on the pension system. The document — written by Lowell Reese, the former publisher of the_ Kentucky Gazette_ — blames lawmakers for the current problems.

Like other governments, Kentucky has an inviolable contract with its retirees and current employees and therefore is required to make pension payments. Currently, the system has an estimated $30 billion more in obligations than it has assets. Some politicians, such as former Republican presidential candidate, Newt Gingrich have suggested allowing government entities to declare bankruptcy to get out of that inviolable contract.

“If you run out of money and can’t pay your bills, you are effectively bankrupt whether you can declare it or not,” he said. (3:50) “Frankly, there are a lot of states — Illinois, California — and Kentucky is one of them.”

Moffett also talked about his view of what Kentucky leaders should do to the tax system. (8:00)

Illinois and Kentucky are among the state’s facing the biggest unfunded liability with public employee pension systems. In 2011, Illinois approved an increase in its income tax to help ease that. But Moffett said that’s a “double-edged sword.” (2:45)

“Illinois has companies leaving because of these taxes,” he said.

Illinois’ 2011 tax increases did prompt threats from large employers. But in December, the Illinois legislature approved a package of tax breaks estimated at $330 million aimed at keeping Sears’ headquarters in Chicago and financial companies CME Group and CBOE Holdings.