Gov. Andy Beshear presented his budget plan last week to address the state-wide pension crisis, which has totaled $14.2 billion in unfunded liability. Though the Kentucky Retirement Systems (KRS) says the governor’s current budget plan could cause an $83 million/year shortfall for the state’s pension system, others have said Beshear’s plan will fully cover the costs.
Beshear’s office disagreed with the testament from KRS, saying the proposed budget plan would fall closer to a $25 million shortfall per year, citing his inclusion of $100 million to help public employees subsidize partial pension relief.
“$110 million more for these agencies is going to the KRS in each of the next two years compared to last year’s budget,” Beshear’s office said.
Pension contribution rates from employers were expected to cap out at 93 percent — an affordable amount for many of these agencies — in Beshear’s budget, but instead, the governor included a 67 percent payroll cap for the 2021-2022 fiscal year for regional universities and dozens of agencies that provide public services on state contract.
Last year’s employer contribution rate was capped at 49 percent. With Beshear’s plan, agencies would pay 67 percent of the pension costs, while the state would pay for the rest.
The Herald-Leader reported that Beshear’s budget would provide both the Kentucky Teacher Retirement System (KTRS) and the Kentucky Employees Retirement System with their full requested contribution amounts.
“KERS will receive an additional $56.5 million in the 2021 fiscal year and $63.9 million in 2022,” the article states. “KTRS will receive an additional $500,000 in 2021 and $14.8 million in 2022.”
An additional $9.3 million in 2021 and an additional $34 million in 2022 will go toward increased health insurance contributions for state employees.
Beshear’s budget would also provide $50 million a year to the quasi-governmental agencies to help them cover costs. State employees will receive a one percent raise in 2021 and 2022, only their third pay increase in the last 10 years, while teachers’ salaries are budgeted for $2,000 increases.
DCPS Superintendent Matt Robbins said the most important thing in resolving the ongoing pension issue is ensuring that the Actuarial Required Contribution (ARC) is fully funded. The ARC grant program provides the region with financial assistance in creating jobs, developing a workforce, and providing health and education services.
“ARC payments weren’t made timely [in the past]. Then you start getting behind,” Robbins said. “I am a proponent of making sure we have the money needed to fund the ARC.”
Robbins said a stable funding source will have to develop in order for the state to “stop wondering where the money is coming from,” adding that he would support tax revenues dedicated toward financing the ARC.
“There’s all kinds of different retirement funds and a lot of complexities,” Robbins said the state-wide pension issues. “There’s about nine different pension [programs] and they all include different verbiage. It gets really complicated really fast.”
As the House and Senate met Tuesday morning to discuss Beshear’s plan, Owensboro Public Schools Interim Superintendent Matthew Constant said it’s a little early to dissect the plan as is, but said he’s pleased with the budget so far.
“It’s so early in the legislative stages, I don’t know what’s going to happen,” he said. “I’m excited about what I’m seeing so far as a first step. It’s very education-friendly.”
Though revenues to resolve funding for the pension aren’t as high as they need to be, Constant said he expects the House and Senate to address that during this legislative session.
“There are parts of the student safety bill that won’t be funded, so we’re watching that closely,” Constant added. “Everything is still a big question mark.”