PEN­SIONS

Lexington Herald-Leader - - Lo­cal -

Ken­tucky Supreme Court ruling that struck down a pen­sion over­haul bill law­mak­ers passed last spring. “Given the mod­est sav­ings an­tic­i­pated, the pro­posed pen­sion ben­e­fit changes, and any re­lated lit­i­ga­tion, would not af­fect the state’s rat­ing.”

The re­port con­tra­dicts the ur­gency Bevin claimed when he un­ex­pect­edly called the leg­is­la­ture into spe­cial ses­sion last month the week be­fore Christ­mas.

“For the sake of all cur­rent and fu­ture Ken­tuck­ians, the leg­is­la­ture must act im­me­di­ately be­fore the Com­mon­wealth in­curs fur­ther credit down­grades that will cost tens of mil­lions of dol­lars for tax­pay­ers and fur­ther limit the Com­mon­wealth’s abil­ity to pay for es­sen­tial ser­vices, in­clud­ing ed­u­ca­tion and health­care,” Bevin said af­ter call­ing the spe­cial ses­sion. “I am con­fi­dent that the Gen­eral As­sem­bly can, and will, do ex­actly that.”

Fitch, though, noted that the bill was ex­pected to save the state about $300 mil­lion over 20 or more years, a fig­ure that pales in com­par­i­son to the state’s pen­sion li­a­bil­ity, which Fitch es­ti­mates at $40 bil­lion.

Ken­tucky has one of the worst-funded pen­sion sys­tems in the coun­try. Last year, Repub­li­can law­mak­ers rushed through a con­tro­ver­sial pen­sion bill that would have elim­i­nated de­fined­ben­e­fit re­tire­ment plans for fu­ture teach­ers and scaled back ben­e­fit en­hance­ments for cur­rent teach­ers.

The bill was chal­lenged by Attorney Gen­eral Andy Bes­hear and even­tu­ally struck down by the Ken­tucky Supreme Court on pro­ce­dural grounds.

Moody’s, a com­pet­ing credit rat­ing agency, has pre­vi­ously warned that the court’s pen­sion ruling was a “credit neg­a­tive” for Ken­tucky, say­ing it “de­layed re­forms to the state’s se­verely un­der­funded pen­sion plans that were set to pro­vide mod­est sav­ings over the long term.” The agency, though, did not lower the state’s credit rat­ing.

“Moody’s has al­ready said that Ken­tucky’s fail­ure to make sig­nif­i­cant pen­sion re­forms is viewed as ‘credit neg­a­tive,’ said El­iz­a­beth Kuhn, Bevin’s com­mu­ni­ca­tions di­rec­tor.

Fitch ac­knowl­edged that Ken­tucky has the largest long-term pen­sion li­a­bil­ity in the coun­try, but said it con­sid­ers the bur­den “mod­er­ate” and projects it will stay the same for the “fore­see­able fu­ture.”

“As­sum­ing the leg­is­la­ture pur­sues sim­i­lar pro­vi­sions in a new bill, Fitch an­tic­i­pates any ben­e­fi­cial ef­fects to emerge slowly, as new hires with lower ben­e­fits grad­u­ally re­place ex­ist­ing em­ploy­ees with higher ben­e­fits,” Fitch said. “These changes are un­likely to ma­te­ri­ally af­fect Fitch’s view of Ken­tucky’s long-term li­a­bil­ity bur­den.”

Se­nate Pres­i­dent Robert Stivers, R-Manch­ester, said there is still a need for pen­sion leg­is­la­tion in or­der to re­duce fu­ture pen­sion costs.

“If we don’t get a plan, it’s just go­ing to be like a black hole,” Stivers said. “We have to put more and more money into it.”

The agency praised a pro­vi­sion of the old bill that re­quired fu­ture leg­is­la­tures to fully fund the pen­sion sys­tem through level-dol­lar fund­ing, a for­mula that would set a flat-rate for pen­sion fund­ing each year.

“Fitch views an on­go­ing statu­tory fund­ing pro­vi­sion as a pos­i­tive step, but not de­ter­mi­na­tive in as­sess­ing Ken­tucky’s com­mit­ment to meet­ing pen­sion bud­getary obli­ga­tions,” the agency said. “As demon­strated most ex­plic­itly in New Jersey sev­eral years ago, fu­ture leg­is­la­tures and gov­er­nors gen­er­ally have dis­cre­tion to re­vise statu­tory multi-year bud­getary com­mit­ments to pen­sions.”

The agency said they will fo­cus on Ken­tucky’s bud­gets rather than the pro­posed pen­sion re­forms in or­der to de­ter­mine the state’s credit rat­ing. It noted that tax changes law­mak­ers ap­proved last year re­sulted in “a siz­able net-rev­enue in­crease,” but ex­pressed con­cern that $500 mil­lion of the bud­get came from one-time fund trans­fers.

“Ken­tucky’s abil­ity to man­age ris­ing spend­ing de­mands while re­duc­ing re­liance on one-time items will con­tinue to drive Fitch’s as­sess­ment of the com­mon­wealth’s fi­nan­cial re­silience as the next, in­evitable, re­ces­sion draws closer,” the agency said.

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