Legislators must address Kentucky’s pension crisis

Published 12:50 pm Thursday, January 3, 2019

Kentucky Governor

When I ran for Governor in 2015, I launched a seven-point plan outlining my vision for moving Kentucky forward, entitled the “Blueprint For A Better Kentucky.” The plan was ambitious and unapologetic in its call to change government, grow our economy and enact policies that would modernize education, healthcare and our tax code. Above all, however, I noted that no matter what we accomplish in any of these areas, our long-term success runs the risk of being undermined if we do not address the single greatest threat facing Kentucky’s financial future, our public employee pension crisis.

Never has the pension crisis been more dire for our state. In less than five years, one of our largest pension systems (KERS Non-Hazardous), is projected to run out of money and collapse. This will affect the financial stability and credit rating of Kentucky and will leave us unable to deliver on the promises we made to all our hardworking police officers, teachers, firefighters and other state employees, regardless of which pension plan they happen to be in.

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While we’ve made the unpopular budget cuts needed to fully fund the pensions, recent declines in the financial markets threaten our fragile pension system further, and remind us that even in a strong economy, we cannot allow the financial foundation of our state to rest solely on the shifting sands of the stock market.

The passage of Senate Bill 151 (SB 151) was an important first step by the General Assembly (also known as the legislature) to address a problem that has been shamefully and irresponsibly ignored by past legislators and governors. It was also a meaningful attempt to save our failing pension plans for past, current and future workers. While some of our pensions have undergone modest structural reforms over the years, the Teachers Retirement System (KTRS) has never been meaningfully addressed.

Sadly, the Supreme Court took a specious, political stance and invalidated SB 151 based upon the legislative process used by the General Assembly, rather than considering SB 151’s merits. In doing so, the Supreme Court not only dismantled meaningful reform for our pension systems, but also ignored the fact that the Kentucky General Assembly (and most other legislatures in America) used the same legislative process every year for decades to pass other bills.

Given the possibility of such a ruling, I began dialogue with the leadership of the General Assembly in the days before the Supreme Court issued its opinion. Together, in multiple face-to-face and telephone meetings, we discussed a plan to avoid further financial uncertainty and damage to Kentucky’s credit rating in the event that SB 151 was struck down.

Despite what many in the media and general public incorrectly believe, as Governor, I do not have authority under the Kentucky Constitution to draft, sponsor or pass the legislation necessary to address our failing pension system. The General Assembly is the only branch of government with the constitutional authority to stop the financial bleeding and save our pension plans for current and future generations. I made it crystal clear, however, as my talks with legislative leadership progressed throughout the weekend prior to the special session, that the executive branch stood ready to assist any legislative effort that would move pension reform forward.

It was with this mutually acknowledged understanding of responsibilities, that I convened the General Assembly into a special session the following Monday. The legislation read in the House chamber that first evening, House Bill 1 (HB 1), was a trimmed down version of SB 151; the very bill passed earlier this year by the same legislators. While some legislators wanted to add to what was passed in SB 151, this was not done. The first bill actually introduced in the special session, was drafted by legislative staff based on specific input from legislative leadership, after multiple conversations on the topic. HB 1 simply removed the provisions of SB 151 that were most likely to be challenged in court, which would only result in many wasted months of further litigation. Credit rating agencies such as S&P and Moody’s have recognized that the uncertainty of litigation surrounding reforms to the Commonwealth’s pension systems itself threatens Kentucky’s credit rating. HB 1 would have allowed the General Assembly to once again take a small, first step toward saving the pension system, and its multiple pension plans, without a cloud of litigation.
HB 1 did not fail to pass through the General Assembly in the special session due to a lack of planning but, rather, due to a lack of legislative will. The weak excuse that there was not enough understanding among legislators about the contents of HB 1, diminishes the sole power and responsibility that the General Assembly possesses to control the legislative process. Such excuses also reflect poorly on the legislative leadership’s ability to communicate with their own members. I believe the leadership is better than such excuses would imply. The General Assembly alone is responsible for drafting bills, amending legislative language and passing laws and is the only branch of government with the full constitutional authority and ability to hasten or slow the process to accommodate the needs of its members.

In light of these significant constitutional powers afforded to our legislative branch, Kentucky taxpayers should rightfully be offended by the hollow excuse that the General Assembly adjourned simply because of the minor differences between HB 1 and SB 151.

In a letter dated December 18th, the morning after the special session began, my General Counsel Steve Pitt, sent every legislator a letter stating that while our administration was confident in the legal right of the legislature to pass SB 151, the slimmed down version known as HB 1, would lessen the chance of litigation that could slow down meaningful reforms. It should be noted, that it was Steve Pitt and his team who defended in court (on behalf of the legislators who chose not to defend themselves), the legislative process used by the General Assembly in the passage of SB 151. The letter clearly stated that the decision about whether or not to pass an identical version of SB 151 or the slimmed down HB 1, rested entirely with the General Assembly. If SB 151 truly had more support among legislators, it was their sole prerogative and responsibility to introduce and pass that same exact bill back into law. Instead, they chose to continue kicking the proverbial pension can down the road.

While I am disappointed that the General Assembly did not have the ability to pass needed pension reforms in 2018, it was not for lack of multiple opportunities given to them to do so. The pension crisis is now looming larger than ever and yet, I remain optimistic that the legislature will do the job that only they can do to start fixing this problem in 2019. Our elected representatives in the General Assembly must address the pension crisis before Kentucky’s retirees, workers, businesses and taxpayers face further financial harm. The problem will not go away if it is ignored.

In conclusion, and contrary to the myth perpetuated by many members of the media and legislature, the special session was not abruptly called with no warning to, or input from, the legislative leaders. The exact opposite is true. HB 1 was not a surprise to those who were elected to lead on this issue. The only surprise was the lack of legislative ability to solve the problem during a 2018 special session. I am expectantly hopeful that the General Assembly will return to Frankfort in January with a renewed sense of purpose to address the pension crisis, because continued waffling, punting and excuses are not going to fix anything. It will take the right combination of knowledge, courage and leadership by a majority of the 138 men and women with the responsibility to save our pensions.

As I have since I first published my “Blueprint For A Better Kentucky,” I continue to stand ready and willing to work with our legislators to save our pension system and move Kentucky forward together. For the sake of all that we love, we must not fail.