With Gov. Matt Bevin expected to call a special session of the Kentucky General Assembly before the end of July to pass legislation related to escalating pension costs for quasi-governmental organizations and universities, House Democratic leaders unveiled their own alternative plans to address the issue on Thursday.
On July 1, 118 agencies including regional universities, local health departments and programs for at-risk clients saw their annual Kentucky Retirement Systems (KRS) pension contributions for employees go up by 70%, which some say could force their organization to shut down.
The General Assembly passed a bill in the regular session earlier this year that would have frozen their contribution rate for one year and allowed organizations to buy their way out of KRS, but Bevin vetoed the bill over concerns that it would further harm the already underfunded pension plans.
Bevin attempted to call a special session to pass an amended bill before the pension contributions spikes for quasi-governmental agencies on July 1 but was unable to gain enough support from Republican legislators.
While the administration now says that its new version of the bill has enough support to pass, that margin is still narrow and requires all supportive legislators to be available for a special session during the summer months, when many are on vacation.
Members of the House Democratic leadership — who have concerns over Bevin’s plans — held a news conference on Thursday to unveil two plans of their own that could be voted on during a special session, which would both freeze the pension contributions of these agencies for the remaining fiscal year and redirect retiree health insurance payments for five years to the lower-funded pension side of those KRS plans.
“We have worked weeks on these proposals, trying to find a way that helps rather than hurts our public health departments, regional universities, rape crisis centers, domestic violence shelters and the others affected by this,” stated House Minority Floor Leader Rocky Adkins, D-Sandy Hook.
“We have reached out across the aisle to our Republican counterparts and to the governor to share our ideas, and we have communicated with the stakeholders as well,” Adkins continued. “We believe these plans provide the certainty and stability the agencies absolutely must have.”
The second bill offered by Democrats would go further by adjusting the assumed rate on investment returns for KRS plans to 6% from 5.25%, limiting the KRS board from decreasing the rate by more than 0.25% in coming years and assuming payroll growth of 1% per year.
“Both of these changes are reasonable and easily defendable,” Leader Adkins said. “However, we provided a more scaled-down bill for those who may not want to make any assumption changes. Ultimately, both bills keep everyone in the state retirement system and they should easily be able to get 60 votes and maybe even all 100 in the House. Crossing that threshold is important in a non-budget year, which is why we believe our plan is on much stronger legal ground.”
While Democrats argue that 60 votes are needed to pass the pension bill because it affects appropriations and debt, Bevin and Republican leaders have insisted that only a majority is needed, as the 60-vote threshold doesn’t apply to special sessions.
“Our goal is to make sure these quasi-governmental agencies can keep doing their job,” stated House Democratic Whip Joni Jenkins of Louisville. “If they go bankrupt, the state will be on the hook for many of the mandated services they provide us each and every day. That could cost taxpayers $400 million or more. That’s three to four times higher than what it takes to freeze the quasi-governmental agencies’ payments.”
House Republican leadership issued a statement calling the Democratic proposals a positive sign that they recognize the scope of the problem, but countered that they have concerns “that these are the very same policies that led to the pension problems we face today.”
“Adopting assumptions that defy ten years of trends with regards to investment returns and payroll growth is particularly concerning,” stated Republican House Speaker David Osborne.
“Giving these selected entities a long-term freeze will cost state agencies like Health and Family Services, the Department of Education, Transportation and Public Protection an estimated $3 billion,” Osborne stated. “As always, we have to realize that this money has to come from either the pockets of Kentuckians or from the services that state government provides.”
House Majority Leader Bam Carney said on Wednesday that there is a window of opportunity for enough legislators to be present on July 19 to pass a bill if a special session is called then. Friday morning, Bevin declined to say that he would call a special session for that day but did say that he plans to call one before the end of this month.
Promising budgetary news also was released on Thursday, as the administration announced that the state closed the 2019 fiscal year with a $194.5 million surplus, along with that state’s road fund revenues exceeded estimates for $59.5 million.
The news release from Bevin’s office announcing the surplus credited economic development efforts and tax reform passed by the General Assembly last year that lowered the top income tax rate and broadened the sales tax to more services. Bevin vetoed that tax bill but was overridden by the General Assembly.