I know that everyone has heard significant discussion about the pensions systems of our state employees, teachers, state workers, and other public servants. These systems affect taxpayers and public employees alike. Thousands of Kentuckians receive or will receive retirement through the funds and Kentucky spends 14 percent of our total budget on pension contributions and that number is expected to grow.
Due to a wide range of issues, including poor management and oversight of the funds and a lack of commitment to proper funding, Kentucky has the second-worst funded pension system in America and over $60 billion in unfunded liabilities. This enormous hole was not dug in a short period of time, and will not be filled in a quick manner. Issues which have contributed to this unfunded liability include underfunding by past governors and legislatures, unrealistic assumptions as it relates to payroll growth and investment returns, and poor management of the systems themselves.
I am committed to working to fix the problems with our public pension systems. Our law enforcement officers, teachers, other state workers and taxpayers demand no less. Thankfully, some progress has been made on this issue thanks to action by the General Assembly. Funding in the last budget totaled well over $3 billion dollars between all of our pension systems. For perspective, that was more than one and a half times what the budget allocated for building and maintaining roads and infrastructure. But as reports indicate, there is far more to do.
The Public Pension Oversight Board, a legislative committee that keeps a watchful eye on Kentucky’s pension systems, recently met to hear a quarterly report from the agencies themselves. While there was some positive news in thanks to increased funding by the General Assembly, our pensions continue to face problems which demand action. For example, the Teachers’ Retirement System (TRS) is currently facing a negative cash flow, meaning that fund is paying more money out than it takes in.
You do not have to look far to see the toll that the pension crisis is taking. As of July 1, regional universities and quasi-governmental agencies saw their pension contributions skyrocket to almost 83 percent of the salary of each employee. These include many organizations whose employees are not state employees, but are still in the pension system and provide an array of valuable services at local health departments, rape crisis and domestic violence centers. As you may remember from a previous update, we passed a solution to address this issue during the 2019 session, but unfortunately it was vetoed by the Governor.
As I write this, my colleagues and I wait for word about a possible special session to vote on a proposal put forth by the Governor. The Governor’s proposal, while not perfect, is the result of meaningful discussions and two months of consideration. While I would have preferred to see the measure we already passed become law, I do believe some good-faith efforts have taken place to produce a bill that still provides both necessary relief and reforms. We technically have some time, as the pension bill for these agencies will not become delinquent until August 10. But I would prefer to see a special session, which only the Governor can call, convened as soon as possible to come to a solution providing relief for these agencies.
I want to share and stress that I have not committed to vote for this bill. This is an incredibly important piece of legislation that relates to an even more critical issue, so I want to give it as much attention as possible.
Failing to provide relief puts these agencies, their employees, and the men and women they serve at risk. However, it is critical to note that failing to provide a long-term solution that addresses the root of the problem has even more dangerous implications. Simply freezing their rate without reforms will cost taxpayers and the pension system an estimated $121 million, without coming to a solution that stops the bleeding. I remain committed to providing relief from the crippling increase in contributions for our quasi-governmental agencies and regional universities, so that they may continue to offer valuable services to our communities.
As always, I can be reached at home anytime or through the toll-free message line in Frankfort at 1-800-372-7181. You can also contact me via e-mail at Reginal.Huff@lrc.ky.gov. You can also keep track of committee meetings and potential legislation through the Kentucky Legislature Home Page at www.lrc.ky.gov.