Tax hikes and slashing programs are among obvious fixes to hemorrhaging pension fund

07/24/2012 05:01 PM

The cure for Kentucky’s billions of dollars in pension problems could include cutting programs and raising taxes, said a top researcher during a meeting for the Kentucky Public Pensions Task Force.

One other wrinkle leaves it open for current and future retirees to see their benefits changed, such as paying more for health insurance.

The Pew Research Center, a non-partisan “fact tank” that provides information and analysis, recommended several options to Kentucky’s pension reform committee to fix the $11.5 billion unfunded liability including: raising taxes, cutting services and programs, asking employees to contribute more, and reducing benefits or a mix of all or some of the suggestions.

Democratic Rep. Brent Yonts of Greenville tried to come to terms with the political reality of raising taxes to fix the fiscal crisis.

“I’m assuming it’s politically logical to assume no state has resorted to raising taxes have they,” Yonts asked the Pew Center researcher.

Taxes have been raised in some states to come to terms with other fiscal dilemmas. But David Draine, a senior researcher with the Pew Center, said taxes raised in states like Illinois did not go toward solving the pension problem.

Pure Politics spoke with David Draine, the researcher for the Pew Center, about what effects a tax rate hike or slashing programs would mean for all Kentuckians.

“These are benefits when states are not able to offer the same level of services – whether it’s future teachers in the classroom, fewer cops in the street, fewer roads getting built – that impacts citizens directly. Similarly if taxes go up that effects tax payers directly,” Draine said.

But there’s another side to this complex pension problem. Those state and government employees who have paid their fair share into the program now could see their benefit levels altered. For instance, retirees could be required to pay more for their health insurance premiums each month.

“At the same time workers have put in money to these systems they’ve made their contributions, but in some cases we’ve seen them forced to get a lower benefit than they’ve been previously expecting,” Draine said.

Overall, Draine said the choice is stark: either put more money into the system or cut the benefits being paid out.

Find out what Draine thinks about Kentucky declaring bankruptcy or floating a bond to pump more money into the pension fund in an extended interview below.

The Kentucky Public Pensions Task Force has four more meetings scheduled in as many months before the group’s recommendations are due on Dec. 7.


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