JCPSUpdated at 7:45 p.m. Monday.

The Jefferson County Board of Education on Monday night discussed and approved Jefferson County Public Schools’ annual financial report, as well as its legislative agenda — both of which address the state’s public pension crisis that looms over governmental bodies across Kentucky.

The comprehensive annual financial report of JCPS for the year ending June 30 implemented new GASB accounting standards, which for the first time require factoring in pension liabilities. The report showed that JCPS has a net pension liability of $257 million for non-certified employees under the County Employees Retirement System, which has produced a $205 million unrestricted deficit for the district. The report also notes that though the state is liable for certified employees under the Kentucky Teachers’ Retirement System, the funds’ liability associated with JCPS is $3.68 billion dollars.

While JCPS as an employer has made full 100 percent actuarially required contributions (ARC) to the CERS plan over the past decade, its funding ratio has dramatically decreased along with other public pension plans also within the Kentucky Retirement Systems that the state has neglected to fully pay. The state also has fallen far short on ARC payments for KTRS over the last decade, as its funding ratio has plummeted to among the lowest teachers’ pension plans in the country.

“The District is challenged by pervasively underfunded or underperforming pension plans in which our employees participate,” reads the JCPS report. “Although the District has made all required contributions at actuarially-determined rates, failure to do so by the Kentucky legislature and subpar investing performance has created a financial contingency to both the District and the state. This creates a significant level of financial uncertainty that may necessitate drastic corrections in future budget periods.”

The district’s 2016 legislative agenda, which was approved unanimously by the board Monday night, places an emphasis on the state legislature developing and implementing a “sustainable solution” to the large and growing unfunded liability of KTRS and CERS in their session next year. While the Jefferson County Teachers’ Association endorsed an unsuccessful bill to issue a $4 billion pension obligation bond in the 2015 session, the district’s agenda carefully states that next year’s solution “should not rely unduly” on such bonds, while not ruling them out.

JCPS board member David Jones Jr. says the glaring deficit faced by JCPS in its annual report is another wake-up call for state leaders to address the crisis, which will now start to be felt in local school districts all over the state.

“The independent professional accountants have basically banged the desk and said this stuff has to go onto the balance sheet and can’t be camouflaged any longer,” said Jones. “This is yet another confirmation of the seriousness of the situation, which a lot of people have already known was a problem, but it hasn’t been a big enough problem to get people to take the tough medicine of a solution.”

Jones says JCPS will now feel this crisis acutely, as the district is required to hold a surplus equal to at least 2 percent of its operating budget, which would be somewhere between $20 and $30 million. But the difference between that amount and the new $205 million deficit due to the CERS liability is practically impossible to erase without deeply unpopular and draconian cuts to educational services children receive, or a property tax increase of up to 50 percent. Jones expects districts like JCPS to only get by if they receive a waiver from the 2 percent surplus requirement.

“My expectation is there will be some technical solution, but this gives us an order of magnitude of how big the problem is — and that’s only the little problem,” said Jones. “The big problem is the KTRS number that is footnoted, the $3.7 billion that is not on our balance sheet.”

Outgoing Gov. Steve Beshear created a work group this year to create funding recommendations for KTRS, with those set to be finished early next month. Those recommendations will come just before the inauguration of new Republican governor Matt Bevin, who pushed during his campaign for putting new public employees in a private 401k plan, and incentivizing current state employees to join them.

If there is no solution forthcoming that can pass the General Assembly, Jones fears the state may push individual districts to dramatically increase property taxes to make pension payments, or “they could try to do what I’m most worried about as a school board member, which is taking it out of the services that children receive and reduce educational quality to pay for the political promises that they made years ago but didn’t pay for.”

“We’ve eaten all of the candy, we just haven’t brushed our teeth,” said Jones. “And that’s the problem with not funding retirement as you go, it gets harder and harder and harder.”

Also on the JCPS legislative agenda approved Monday night are calls to:

  • Provide increased funding for elementary and secondary education, including an increase in the SEEK per pupil amount and early childhood education
  • Give the JCPS superintendent greater authority in the selection of a principal when a vacancy occurs
  • Oppose charter schools and the use of public funds for non-public schools (which Governor-elect Bevin strongly supports doing)
  • Oppose legislation taking away community-by-community flexibility on its school calendar, such as start dates and breaks
  • Permit the JCPS Board to meet in closed session to discuss terms of a superintendent’s contract

Disclosure: David Jones Jr. is an investor in Insider Louisville.