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The Kentucky General Assembly and Gov. Steve Beshear pulled off as close to a political miracle as you’ll ever see last week when in five days they managed to steer the state pension funds on a new course to avoid bankruptcy ensured by their most recent reckless path.
Never mind that the pension rescue should have been accomplished years ago or that it could have been done earlier this year when the lawmakers were gathered in the state capital for their every other year budget session. Never mind that the five days in Frankfort cost taxpayers like you at least an extra $300,000 to support the lawmakers in special session, at $60,000 a day. Remember how many people like you paid their entire state taxes just to pay for this session called by the governor.
Most people probably didn’t pay much attention to the squabble, because most people aren’t included among the 435,000 state, county, city and school employees covered by the pension systems. But as taxpayers of Kentucky we all are liable for the $26 billion in underfunding that the governor said was growing by $92,000 an hour, $2.2 million a day, $800 million a year. We all are liable for out-of-control benefits costs. We all pay the taxes that support the pension system at the state, city, county and school employees. And we all want the best-qualified people as teachers, police officers, firefighters and other employees covered by pension systems.
We do have to wonder, though, what it takes to get the attention of the General Assembly, to persuade these elected officials to act in the interest of the constituents they represent. The pension system was going bankrupt. Local governments were paying more and more every year, sacrificing necessary services or resorting to higher taxes. Two national credit agencies already lowered the state’s credit rating outlook at least partially because of the underfunded pension systems, which could have resulted in a nearly $60 million increase in debt service.
To get the point across the governor correctly compared the situation to “an approaching meteor ... runaway freight train ... tsunami ... financial catastrophe.”
Don’t get the wrong message. The job’s not done. This past week’s work was just a beginning, small but important step. The result of the new legislation passed with only one negative vote by the House and Senate and signed Friday by Beshear is that new employees will have to work longer to become eligible for a pension. They will have to pay a small percentage of their salary for health insurance. The state will have to increase its contributions to the pension fund annually until the shortfall is resolved. And public employees no longer will be able to dip twice into the pension systems.
The importance of acting now was that a record number of state employees are expected to retire by the end of the year to take advantage of a special benefit, and any new employees hired to replace them would have continued under the old plan.
Yet to be tackled are some of the most difficult decisions. They include following the model of businesses most of which have made the transition from defined benefits to 401(k)- and annuity-type retirement plans, and exploring ways to increase the investment income from Kentucky’s retirement systems which have been lagging 2 to 5 percent behind at least two dozen other states.
To take on those inevitable issues, Beshear appointed a Public Pension Working Group to report back to him by Nov. 1 with recommendations to finish the pension reform task. We hope the positive results of the special session spur that group and ultimately the General Assembly to make the appropriate changes a top priority for their next session in Frankfort.
This editorial represents a consensus of The News-Enterprise editorial board.