Record $3.3 billion bond proposal for Ky. teachers' pensions moves to full House without opposition in committee
02/10/2015 02:31 PM
FRANKFORT — The House Appropriations and Revenue Committee passed legislation on Tuesday that would authorize the single largest bond issued in the state’s history, a $3.3 billion proposal to shore up funding at the Kentucky Teachers’ Retirement System.
House Bill 4, sponsored by House Speaker Greg Stumbo, didn’t receive a dissenting vote in the budget committee, although Rep. Addia Wuchner, R-Florence, voted pass.
The near unanimous result buoyed Stumbo’s hopes of not only passing the bill once its reaches a floor vote, but also sending HB 4 to Gov. Steve Beshear’s desk.
Stumbo said he wouldn’t be surprised if the Republican-led Senate wanted to consider benefit changes for public school teachers in the future, but he said he has not broached such matters with leaders in the other chamber.
“I don’t think anyone is opposed to that discussion,” said Stumbo, D-Prestonsburg, whose 30-year bond proposal hinges on current low interest rates given KTRS investment performance in recent years. “Hopefully we can have some resolve and do what we did in ’13 and make some meaningful changes that will shore up some of these systems, but that was a pretty impressive vote count today.”
Republican leaders in the Senate have been cautious of Stumbo’s proposal, but a KTRS official said the $3.3 billion bond sale would put the pension system on solid financial footing in the near future.
Beau Barnes, deputy executive secretary of KTRS, said the plan would couple bond sales with funds already budgeted for KTRS, namely current debt payments and amortized cost-of-living pay adjustments and sick time, to buy the state some time to formulate a long-term financing plan.
Failure to issue bonds will double the state’s actuarially required contributions to KTRS by fiscal year 2026, Barnes said, noting the system’s funding status will jump from 51.9 percent currently to 72.4 percent by fiscal year 2035.
“It’s not a risk, but it’s a 100 percent certainty that if we don’t do something very soon, this problem continues to get much, much worse very quickly and gets to a point where it is very difficult to solve without a whole lot of pain,” Barnes said in committee testimony. “And that’s a 100 percent certainty. There’s no way we can avoid that if we don’t do anything now.”
Still, KTRS is not immune from risk. Another recession could strike, although Barnes said he expected the stock market to trend closer to the pension’s 7.5 percent assumed rate of return.
Rep. John “Bam” Carney, a public school teacher, wondered why lawmakers weren’t considering additional steps to improve the financial health of the teachers’ pension system.
“I don’t think anybody’s saying bonding alone is going to solve our problem either, but while we’re doing this, why are we not looking at more tools to put in the toolbox so this is solved long-term?” asked Carney, R-Campbellsville.
The KTRS board has been looking at the benefits for new hires “to address some of the concerns we hear” since last year’s session adjourned, Barnes said, calling the pensions for teachers “very modest.”
Stumbo, testifying before the committee, said the House would be “receptive” to discussing possible pension reforms for new public school teachers.
“I’m open to it. I think the system’s open to it,” he said. “I think we all agree it’s not a political football, it’s a fact of life that we all have to deal with it, and going forward I’m certainly open to any discussions and talking about of those type of reforms that will add to the solvency of the system for new hires.”
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