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.”
