Bluegrass Beacon: Will pension funding engulf entire budget?

Editor’s note: The Bluegrass Beacon is a weekly syndicated statewide newspaper column posted on the Bluegrass Institute website after being released to and published by newspapers statewide.

Your humble correspondent warned for years that the day would come when public-pension funding crowded out government services Kentuckians on both sides of the political aisle care deeply about.

I’ve also warned repeatedly that dumping more money into the systems without stopping the bleeding of the nation’s worst pension crisis among states will create additional pressures on an already-strained budget while failing to fix the woes of our retirement systems.

Despite fervently hoping such prophecies were wrong, they now find fulfillment in Gov. Matt Bevin’s proposed two-year budget.

Bevin recommends cutting 70 programs, including health screenings for various cancers, which especially benefit low-income, disabled and poor Kentuckians, while at the same time dumping more than $3 billion – nearly 15 percent of the commonwealth’s next entire two-year General Fund budget – into the deepening public-pension hole.

Even after more than $2 billion was included in the 2016 budget – including an additional $1.2 billion for the Teachers’ Retirement System – the pension plans’ funding levels have continued declining.

You can’t keep digging the hole and simultaneously expect to move closer to climbing out of it.

Many states face similar pension pressures, yet none have made spent, taxed or borrowed their way out of their holes, most of which aren’t nearly as deep as Kentucky’s.

The governor deserves credit for taking a stand in his recent budget speech to a joint session of the legislature against borrowing our way out of this mess, making it clear such an alternative is off the table.

 Doing so, he rightly states, would be like a family using the Mastercard to make payments on the American Express balance.

However, instead of going ahead and doing what that same family would if it wants to climb out of its financial hole – reducing spending – he proposes increasing it for public-retirement plans at the expense of just about everything else.

“Never once in the history of Kentucky has the (actuarially required contribution) been fully funded for all our pension systems – not one time, which is why we now find ourselves in the situation where they are all so severely underfunded,” Bevin said, sounding like many of his predecessors who found it easier to blame pension problems on funding deficiencies rather than the fact that the commonwealth has for years offered benefits at unaffordable and unsustainable levels.

“This year they will be funded in their entirety,” he boasted.

As if I should stand up and clap vigorously like I did when the governor announced something must be done about school systems’ central-office administrators making six-figure salaries while demonstrating little, if any, positive impact on student achievement in the classroom.

Bevin’s boast isn’t really that helpful, considering the ARC, which is simply the cost of current benefits plus debt payments from the past, isn’t “fully funded” because it’s been arbitrarily decided rather than actuarially established.

Instead of awarding only benefits that are properly prefunded – as defined-benefit systems are supposed to do – Kentucky’s retirement plans have for years colluded with politicians to increase benefits retroactively, thus disrupting the systems’ funding levels.

Of course, these unfunded benefit enhancements created a bigger ARC.

However, to blame Kentucky’s pension woes on inadequate funding by the legislature is like a couple with a $45,000 income getting evicted after purchasing a $1 million home and being unable to make the payments, then blaming their eviction on the fact they couldn’t make the payments rather than on the reality that they purchased a home they couldn’t afford.

It’s unfair for politicians and these systems’ administrators to make promises to beneficiaries they can’t afford to keep.

It’s also patently unfair to leave taxpayers in the private sector trying to support their families and who often don’t enjoy nearly the same level of retirement benefits holding the ARC bag into which they must dump an increasing number of their hard-earned dollars to pay the principal and interest on those promises.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.