Kentucky’s General Assembly will need to find an estimated $5.4 billion to fund the pension systems for state workers and school teachers in the next two-year state budget, officials told the Public Pension Oversight Board on Monday.
That amount would be a hefty funding increase and a painful squeeze for a state General Fund that — at about $20 billion over two years — also is expected to pay for education, prisons, social services and other state programs.
There are two reasons for the dramatic increase.
First, Gov. Matt Bevin and the legislature committed two years ago to paying the state’s full annual recommended contribution, or ARC, to the long-underfunded Kentucky Retirement Systems, which provides pension benefits for state and local government retirees.
Second, KRS recently adopted more realistic financial assumptionsabout its investment returns and the state’s payroll growth. Those new assumptions made KRS’ numbers look far worse literally overnight.
The legislature will pass the next state budget during its 2018 law-making session this winter.
“We realize this challenge is in front of us. That’s obviously part of the need for us to address pension reform,” said state Sen. Joe Bowen, R-Owensboro, co-chairman of the oversight board.
“In the short-term, yeah, we’re obligated to find this money,” Bowen said. “And everybody is committed to do that. We have revealed this great challenge. We have embraced this great challenge, as opposed to previous members of the legislature, perhaps.”
The only question is how bad the austerity budget is going to be here in Kentucky, and it's almost certainly going to start with massive cuts to Medicaid and other state health programs in what's already one of the least healthy states in the nation, one that's at the epicenter of the country's opioid crisis.
Expect more steep cuts to education and infrastructure too as Kentucky remains near the bottom of test scores and replacement of one of the busiest bridges in the Midwest, the Brent Spence bridge leading into Cincinnati, is delayed yet again.
I foresee massive state employee layoffs and pay cuts on top of the 17% across-the-board cuts Bevin ordered this year. Finally, don't be surprised if Bevin decides that Kentucky needs to pull a Brownback and destroy the state's tax base in order to make it "more competitive to business" as we go down the road to fiscal destruction like Kansas as lack of good schools, crumbling infrastructure, and lack of health care options have driven skilled workers away from the state and may take businesses with them.
Kentucky Republicans are putting us on a path to be in ten years the disaster Kansas is now, and Matt Bevin is ready to run the ship of state into an iceberg just to prove a point.