By John Cheves
Click here to view the full article
A possible $1.13 billion cut in state funding for Kentucky teacher pensions — as Republican state senators propose in their two-year budget plan — would create “a very serious problem” for the $20.4 billion pension fund, one official said Monday.
“If we don’t get that money in the upcoming biennium, then we’ll go back to the old days of unmanageable losses and negative cash flow, where we’re having to sell off assets in the worst down market since the Great Recession,” said Beau Barnes, general counsel for the Teachers’ Retirement System of Kentucky.
“That would be a permanent loss for us,” Barnes said. “That, in turn, would require the system to ask for even greater funding in future budgets. It builds on itself.”
On Monday, a handful of Republican House and Senate leaders began to negotiate their differences on the state budget, sitting as a conference committee at the locked-down Capitol. The full General Assembly is adjourned until Thursday, when lawmakers are scheduled to return and possibly vote on a final budget.
Senate President Robert Stivers, R-Manchester, told his colleagues they should view the budget bill with some skepticism. With the U.S. and Kentucky economies in a state of partial collapse because of the novel coronavirus pandemic and shutdown, it’s unlikely that state government revenue will “come even close” to the numbers forecast for lawmakers in December, Stivers said.
“I’m not blaming anybody. It’s just the result of unforseen circumstances,” Stivers said.
It would help if lawmakers could get a fresh revenue estimate from the Consensus Forecasting Group that more accurately reflects current events, with many Kentucky businesses being closed and thousands of people losing their jobs, Stivers said.
“We have a huge service economy that’s based on social interaction,” he said. “The attempt to slow it (the virus) is based on social distancing.”
Perhaps the biggest difference right now between the House and Senate budget plans is teacher pensions.
The House budget, like Democratic Gov. Andy Beshear’s proposal unveiled in January, would provide $2.4 billion requested by the teacher pension system to cover its expected costs and help make up its unfunded liability. As of last June 30, the TRS pension fund was 58.8 percent funded compared to what it’s expected to pay out in coming decades.
The House budget did cut one corner: It would not fund the $68 million necessary in the second year of the budget for retiree health insurance costs for teachers under the age of 65, who are not yet eligible for Medicare. Without that money, TRS would have to cover the insurance cost from its other funds.
The Senate budget would skip payments for both budget years of under-65 retired teacher health insurance, sticking TRS with a bill for $130 million.
Far more dramatically, the Senate would withhold $1.13 billion from teacher pensions — the portion meant to help make up for the unfunded liability — unless “structural reform” is made to the retirement benefits offered to newly hired teachers.
The budget bill does not provide details on what “reform” the senators wish to see. But if necessary changes aren’t made to TRS by Aug. 1 of each fiscal year, the money for teacher pensions would be given instead to the primary state employee pension fund at the Kentucky Retirement Systems, which is only 13 percent funded.
There are two GOP-sponsored House bills that would change retirement benefits for newly hired educators. House Bill 576, which never left committee, would create a new tier of teachers at K-12 schools who get less generous benefits. House Bill 613, pending in a Senate committee, would do something similar for the state’s regional universities that have educators enrolled in TRS.
The Senate’s move on teacher pensions has drawn sharp rebukes from Beshear and teacher groups, who criticize the timing, coming as it does with the public shut out of the Capitol and focused on the pandemic, closed schools and massive job losses.
TRS pays more than $2 billion a year in benefits to 50,544 retired educators, who do not qualify for Social Security retirement benefits in Kentucky. There are also 72,647 working educators paying into the system, along with their employers.
The House did not agree with the changes made to the budget bill by the Senate, which is why the measure now is being negotiated by a conference committee.