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Gov. Steve Beshear: 'I won't take money from education to fix pension underfunding'

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(Editor’s note: This post was updated at 10:45 a.m. on January 24. The original version of this post misstated the level of state government staffing, and the grade the state received from Education Week magazine.)

In the middle of his remarks to Greater Louisville Inc.’s Capital Connection event today, Gov. Steve Beshear joked that politicians have a habit of being on both sides of an issue.

But Beshear spoke bluntly and extemporaneously for an hour to his 600-plus audience of Louisville business leaders about where he stands on a number of issues. He spoke in the most detail about the state’s pension shortfall, which is about $30 billion.

Kentucky got severely upside-down on the retirement funds because in good economic times, state government diverted state pension contributions to other things, he said.

“You can’t point any fingers and blame any set of individuals,” he said.

Beshear noted that recommendations are that the state begin instituting the discipline of paying annual actuarially required contributions, or ARCs, that would return public employee retirement funds to liquidity.

“The big question is, ‘Where does that money come from? … $100 million to $300 million for the next 25 or 30 years.

“It’s a lot of money.”

Beshear rebutted conventional thinking that the state can solve the problem through revenue growth as the United States recovers from the Great Recession.

“Let me disabuse you of that. Revenues are not growing at anywhere near the rate to do that. We have to meet other obligations. Revenue growth is not going to solve that problem.”

Beshear said he will not take money from education, economic development, public safety or other essential budget segments to fund the public pensions.

He said he spent the last five years leading the state through recession, “and it wasn’t pretty. It wasn’t fun.”

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The state cut $1.6 billion from the budget since 2008, and the Kentucky has the smallest state-government workforce in 20 years, according to Beshear. “No one can say we haven’t addressed this problem. It’s just that there’s no extra change laying around, and people need to understand that.”

Beshear said that even with budget cuts, the state has pushed ahead in education.

He referred to Education Week’s latest ranking of states, saying Kentucky had risen to No. 10 currently from No. 34 two years ago. (On the most recent ranking, Kentucky received a “grade” of B-, 76.9 based on six categories including student achievement and school finance.)

Beshear said even in education, Kentucky is at a “breaking point,” where the state’s education system is essentially treading water, with no budget increases while the student population is climbing.

“In some (school) systems, students can’t even take textbooks home. These kinds of things aren’t acceptable to me. I hope they’re not acceptable to you.”

Beshear said he expects the Kentucky General Assembly to go into special session after its current regular session to debate both tax reform and the pension issue.

The governor spent the first part of his speech extolling job creation in Kentucky. “There is no state better positioned to lead this nation out of the recession than the Commonwealth of Kentucky,” he said.

He also endorsed Louisville Metro Mayor Greg Fischer’s proposal for a local option sales tax, a temporary tax Fischer says would be dedicated to large Louisville projects. Currently, under the state constitution, localities and municipalities do not have the authority to institute such a tax.

Earlier this month, Kentucky Attorney General Jack Conway ruled that cities can levy only license taxes or ad valorem taxes, not excise taxes such as a special local sales tax.

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