Governor spins pension reform as No. 9 accomplishment

Today Gov. Beshear released a list of his Top 10 Accomplishments in 2013. Number 9 on the list was “Secured Pensions, Lean Government.”

Here’s what he said about public employee pensions. He is referring to Senate Bill 2, the pension reform bill enacted in April 2013.

“This spring, Gov. Beshear led weeks of bipartisan negotiation which resulted in the passage of bills to stabilize and modernize the state’s pension system [emphasis is the governor’s]. The legislative package created funding to pay the state’s full (sic) recommended annual pension contribution without threatening key state services like education and public safety. The increased cost to fully fund the actuarially required contribution to the Kentucky Retirement Systems is estimated at $100 million per year from the General Fund.

“The looming pension liability threatened to gut funding for education and all other priorities. It demanded our immediate and bipartisan cooperation,” said Gov. Beshear. “No matter our political philosophies, none of us were willing to put our kids at risk of a stripped-down education.”

Well, I should tickle the governor before I pinch him. He should be congratulated with a great deal of enthusiasm for connecting the dots between public employees pensions and education, and for saying so in such a high-profile release.

Education is the best hope — no, the only hope — for a relatively poor state like Kentucky to become un-poor. And the most immediate threat to that opportunity right is now is the $33.7 billion public employee pension debt, which must be paid, and doing so is crowding out funds for education at a rapid pace.

Since 2008, base funding for K-12 is down 1 percent, funding for higher education is down 14 percent, while the cost of state employee pensions is up 63.5 percent.

Now the pinch: The governor boasts of “the passage of bills” (SB 2 and HB 440) to “stabilize and modernize” the state’s pension systems. SB 2 is the much ballyhooed and oversold pension reform bill. It did not stabilize the pension systems — certainly not in the short term, and probably not in the long term. Actually, SB 2 raises the employer (taxpayer) cost 44 percent in each year of the next two-year budget, and will continue to cost more than the present system through 2018. After that, the Kentucky Retirement Systems’ actuary projects that savings will kick in, and over the next decade save $10 billion.

There are two reasons why the purported $10 billion savings is hyperbole. The 20-year projections producing the savings is based on (a) “0” changes for two decades in the assumptions used in making the projection, such as medical inflation, market yields, size of the government payroll, and a variety of other factors; and (b) the projection is based on “0” benefit improvements for public employees for two decades — both defy logic.

Given the nature of politicians — and the subject of pensions is a public policy issue — and the culture in Frankfort in which they operate, a culture of double and triple dipping government pensions, there may be no savings at all from SB 2 after the next two decades, only rising costs.

There’s going to be a see-saw effect out of this — as medical inflation and other cost-drivers go up, savings go down; as employee benefits go up, savings go down. Every new cost will erode the savings a little bit more until possibly there are no savings.

Also in the governor’s release, he said the “increased cost” to fully fund the ARC payments to KRS is “estimated at $100 million per year from the General Fund. What he conveniently ignored (it’s called spin) is that not all of the increased cost for going to 100 percent of the ARC is paid out of the General Fund. Some agencies pay with fees; aquasi- and non-government entities pay directly and so on. The total increased cost for the biennium is about $450 million in additional revenue. Further, the governor’s $100 million ($200 million for the biennium) from the General Fund is low-balling it.

Besides, where will the $200 million extra that the governor is talking about come from, in an already very tight budget?  Well, lawmakers have three choices: raise taxes, borrow, or rob Peter to pay Paul — which means further crowding out of essential government services, and education is the biggest slice of the budget pie.

In the meantime, the red ink in rising in the public pension systems, and the cost of pensions will continue to devour funds for education —unless education leaders, together with taxpayers, revolt and demand of politicians that they get pension expenditures under control.

The pension crisis is not a revenue problem; it’s an expenditure problem. With apologies to James Carville: “It’s about the expenditures, stupid.”

Judge’s pay gives Stein gold-plated pension

When Gov. Beshear appointed state Sen. Kathy Stein, D-Lexington, to a judgeship in Fayette County in October it tripled her legislative pension by nearly $900,000. The windfall is the result of a little noticed bill when it was enacted in 2005 (HB 299) that allows legislators to switch salaries when calculating their legislative pension.

The three factors in a legislator’s pension formula are (1) salary, (2) years of service and (3) 2.75 percent. Thanks to the 2005 law, which legislative leaders — Republicans and Democrats — sneaked through the legislative process, Stein is able to use her judge’s salary of $124,618 instead of her pay as a legislator, which was $40,668. Stein did not vote on the bill.

Using the higher salary triples her legislative pension, and, based on a Social Security Life Expectancy Table, gives her a lifetime gain of an estimated $888,174 … on top of her regular legislative pension.

Stein is not the only one who left the General Assembly enriched from the 2005 bill. To name a few, former Rep. Harry Moberly, D-Richmond, quit with a legislative pension of at least $168,686 a year; former Rep. J.R. Gray, D-Benton, left with a legislative pension of about $136,500 a year; and when former Rep. James Comer resigned to take the oath as commissioner of agriculture it was a moment that spiked his legislative pension at least $467,369. Moberly, Gray and Comer in 2005 voted in favor of the self-enrichment.

Moberly and Gray also have a second pension in KERS, the pension system for state employees, in which they were enrolled automatically as a legislator once they “maxed out” in the legislators’ pension system, thanks to a 1998 law change that hardly anyone knows about.

So, Moberly’s government pensions for being a legislator is around $180,000 a year — and he almost surely has a third pension from his private-sector employer, Eastern Kentucky University, that puts him well over $200,000 a year from three government pensions.

Gray also has a second pension in KERS, under the 1998 law, putting his two government pensions at around $150,000 a year.

The list of super-rich pension (courtesy of the taxpayers) for a part-time as a legislator is long and growing. Reps. Bob Damron and Sen. Walter Blevins have announced they are running for county judge-executive next year — a move that would more than double their legislative pensions. Look for more legislators to run for judge-executive.

Pension abuse is embedded in the culture, especially in Frankfort. It is common for people in the capitol city to be drawing “two and three” pensions.

Oh, did I fail to say the pension system for state employees is so broke it’s on life-support, and that pension costs are crowding out essential government services?