Jim Waters

By Jim Waters, Bluegrass Institute

Recently, I was a panelist on KET’s “Kentucky Tonight” program about the Commonwealth’s public-pension crisis.

Much of the discussion reminded me of an annoying rhetorical tactic generally reserved for parrots, but often employed by cheerleaders for bigger, more costly government: repeating the same nonsense over and over until viewers cave to the pure monotony.

For instance, liberals squawk that the state’s $31 billion in unfunded pension liabilities is not a public-pension issue at all, but rather a matter of deficient funding.

In fact, one fellow “Kentucky Tonight” panelist spouted the need for “revenue enhancement” – code language for “tax increase” – no less than five separate times on the same program.

Never mind the fact that the Federation of Tax Administrators reports that Kentucky ranks No. 13 in the nation for tax burden as a percentage of personal income, and No. 9 for spending as a percentage of Gross State Product.

Some believe that if Frankfort would only remove even more resources from (raise taxes on) the private sector, all of our public-pension woes would be solved.

But would they? Frankfort actually requires by law that the County Employee Retirement System (CERS), one of five such systems in Kentucky, be fully funded according to the state’s actuarial standards.

Yet as fellow panelist Bryan Sunderland of the Kentucky Chamber of Commerce pointed out on the KET program, CERS today finds itself in a $4.9 billion hole – despite the fact that local governments have made their full payments into the system for decades.

There must be more to reforming Kentucky’s public-pension systems than simply throwing more money at them – which is about all that was accomplished by Senate Bill 2 during this year’s legislative session.

After its passage, Senate Majority Leader Damon Thayer, R-Georgetown, proclaimed significant pension reform had been accomplished

“History will remember what we did here during the 2013 session of the General Assembly,” Thayer said.

That’s pretty high praise for a bill that raises taxes and guarantees a rate of return on invested retirement funds no matter how the economy performs, isn’t it?

John-Mark Hack, who’s campaigning for the 56th Kentucky House District seat being vacated by Carl Rollins of Midway, is more accurate in his description of the overhyped bill: “lipstick on a pig.”

From whatever angle one looks, there are several reasons why SB 2 did not put our pension system on the road to recovery:

• It does nothing to make the public-pension system transparent to taxpayers.

Few politicians openly oppose making public-pension information available to the taxpayers who fund it. Yet by filing bills and then refusing to push them – as happened to transparency legislation during this year’s General Assembly session – information about who collects, how many pensions they get and the size of those checks remains among Kentucky’s best-kept secrets.

• It does not significantly reduce the risk to taxpayers posed by public-pension liabilities.

While new employees will be placed on a hybrid cash plan, they are guaranteed a 4-percent return on their invested retirement funds. How many taxpayers who work in the private sector but are forced to fund this plan receive such assurances?

• It does nothing to prevent the “spiking” of salaries at the end of public careers.

“Spiking” gives some government employees sizable pay boosts at the end of their tenure just to jack up retirement packages. It happens in Frankfort all the time.

• It won’t result in current employees contributing more toward their pension benefits.

Instead, it will be largely more of the same, at least for the foreseeable future: passing the fiscal burden of older generations onto our children and grandchildren.

Is that the kind of history we want to make?

About Jim Waters: Jim Waters is acting president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at [email protected] Read previously published columns at www.freedomkentucky.org/bluegrassbeacon.

4 thoughts on “Jim Waters: Squawking about pension reform doesn’t make it so

  1. So obviously the return assumptions on the retirement investments were fast-and-loose and very liberal. This seems to account for much of the large shortfall. That was probably a symptom of the times but also could have been a backdoor way of making pension–and thus tax–obligations palatable in the opposition of anti-tax, anti-government people. It would have been dishonest, sure, but maybe the only way to ensure that type of retirement system for another decade. (They deserve all the blame for the dishonesty but, IMHO, their hearts were in the right place regarding pensions.) The best situation would have been a transparent policy debate with sober, honest assessments of what was at stake (pensions) and what they would end up costing (with realistic returns) back in the Patton administration when, apparently, the cards were moved under the table. If the political/electorate will was not there for pensions at that time, so be it, we should have cut/reformed them then. But alas, we’re talking politics and that doesn’t happen.

    “There must be more to reforming Kentucky’s public-pension systems than simply throwing more money at them – which is about all that was accomplished by Senate Bill 2 during this year’s legislative session.”

    My understanding is that the (insufficient) money ‘thrown’ at pensions in SB2 is a paltry attempt at closing an existing gap, not the decided-upon method of reform.

    And while I’m sure there are instances of salary spiking, I think that might be a red herring.

  2. I was under the impression that the main cause of the shortfall had to do with legislators robbing Peter to pay Paul over the years to cover other underfunded mandates, and the lack of funds is due to the worldwide recession and collapse of the real estate market in 2008. Which would make it a victim of deficient funding, right?

  3. This is a crap article written by a crap organization that is strictly anti-public employee and anti-government. If state employees worked for free, I’m sure The Bluegrass Institute would find something to complain about.

    Mr. Waters is complaining above about many things, one of which is the 4% guaranteed return to state employees on their pension. Fellas, it has been proven time and time again that a 401(k) was 1) never meant to be a primary retirement option, and 2) not sufficient to be a primary retirement option. 4% is a crappy gain in the stock market, so “guaranteeing” that really amounts to very little, especially since the state is going to take anything over 4%.

    As as for “transparency” about pension amounts and so-forth, state employee pensions are based on pay, and the pay is AMAZINGLY LOW and has been for about 12 years. I warn any professional-level person reading this now–do not come work for state government. It is a dead-end career with NO chance for promotion or improvement. Pay is a joke, the perks have been hacked to death by people and organizations like “The Bluegrass Institute”, and you are constantly under attack and your position misrepresented by these people for their own ill gains.

  4. They investigated salary spiking and found that it attributed for NO significant money. It just didn’t happen enough to affect anything.

    The lack of funding (i.e. not “throwing money at it”) is what got us into this mess, and they’re still not funding it, so expect more trouble in the future.

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