Feb. 6, 2013 —
In Greek mythology, the “sword of Damocles” represents an impending disaster. It never goes away, constantly waiting to happen.
That analogy describes the pressure that is mounting for members of the General Assembly to deal with the state’s public pension crisis in the current legislative session.
The latest weight added to the flimsy string holding the legendary “sword” was put there last Thursday when Standard & Poor’s Ratings Services announced a downgrading of the state’s fiscal outlook because of unfunded pension liabilities, now estimated at $30 billion.
S&P revealed the revision from stable to negative and then confirmed its existing AA-minus credit rating for the state’s bonds.
To no one’s surprise, the S&P experts said the two negative responses reflected the financial community’s concern over the decline of pension funding levels and the likelihood that the decline would continue.
And, to make sure that no one misunderstood, the credit analyst from S&P pointed out that the state had consistently underfunded its post-retirement pension liabilities and likely doesn’t have the means to start fixing the problem.
The financial “fix” requires a commitment of at least $327 million in the next state budget starting July 1, 2014.
However, the first part of the “fix” should happen this year, lawmakers were told by a coalition of 50 of the state’s most powerful business groups, including the Kentucky Chamber of Commerce and the National Federation of Independent Businesses.
The retirement system for state employees has an unfunded liability of about $18 billion. Another $12 billion exists in the other pension plans for teachers, city and county employees and state police.
The problem was created by a combination of lower-than-expected returns on investments and the General Assembly’s failure to fund all of the state’s contributions each year.
A pension reform task force has recommended changes in how the retirement systems operate, including an end to automatic cost-of-living adjustment for current and future retirees.
The task force said new public employees should go into a plan more like a 401-K or other private pension approach.
Another group calling itself the Kentucky Public Pension Coalition and representing 19 employee and retiree organizations says persons most affected by changes in public pensions have not been sufficiently consulted on possible solutions.
In our view, the General Assembly should make necessary statutory changes this year to keep the problem from getting worse.
That would leave nearly a full year to find the money needed to start balancing the books and restoring the state’s credit rating.