Like ugly, entrenched weeds overtaking plush gardens, Kentucky’s $34 billion unfunded public pension liability now dominates all budget decisions – not only in Frankfort but also in Kentucky’s 418 cities.
State political leaders have made it clear they are willing to sacrifice human capital before allowing the fiscal realities of the commonwealth’s pension debt to crowd out costly pet projects – or their own opulent retirement benefits.
Giving state workers unpaid furlough days without raises or cost-of-living increases while still finding $122 million to pay for 70 new courthouses reveals that politicians assume plenty of flexibility in how they spend our tax dough.
By fiddling away while the pension crisis spins uncontrollably, most state lawmakers and our caretaker governor demonstrate little urgency for the predicament faced by their brethren toiling in local governments.
While Frankfort holds task force meetings that largely avoid dealing with tough issues like politicians’ pensions, a lack of transparency, reforming pension-oversight boards and eliminating benefit creep, local leaders frantically search for Mary, because they’ve already robbed Peter to pay Paul.
Mayors find her outside police and fire stations where deep cuts in spending on public safety await. They also find her waiting at city managers’ offices as layoffs loom – all so local governments can make their mandated pension payments.
I witnessed this firsthand at a recent Covington City Commission meeting where “Mary” was “found” in the city’s firefighting budget as nine positions went up in budget-cutting flames in order to achieve $500,000 in savings.
Separate the final outcome from the reason for them, and all is not bad news. Financial distress is forcing communities to cut unnecessary spending.
The budget-cutting process revealed that Covington’s fire department spends 65 percent more than departments from other similar-sized cities. Duplication of services also was eliminated as the city and Kenton County merged 911 emergency-dispatch services, saving the city $1 million annually.
While such actions appeal to fiscal conservatives, the motivating force behind them drowns at least some of that elation.
In their presentation to commissioners, Covington fire officials pointed to the city’s pension costs as a driver of the cuts. But they also rightly blamed state legislators for why commissioners are in their current predicament of deciding not if – but which - services citizens will do without.
A contemptible irony of Kentucky’s retirement systems is that the state is not legally bound to fully make its promised pension contributions, yet locals are forced to pay up at rates the General Assembly establishes.
The current state budget requires cities to put aside an equivalent of nearly 40 percent of hazardous duty workers’ salaries and 20 percent of non-hazardous employees’ salaries into the County Employees Retirement System (CERS).
Steve Frank, a certified financial planner by day and Covington city commissioner by night, calculated that means local governments must pay an additional $24,000 to fund pension benefits for hazardous duty workers with $60,000 salaries.
To make its payments, Frank said Covington had to “skimp on maintaining our streets, roads, sewers, and levee system.” It all adds up to a $35 million deferred maintenance bill, “and is why the roads and city look the way they do.”
Many other local leaders tell similar stories.
Even after all their cuts, Covington still is able to fund only half of the estimated $7 million needed to keep its infrastructure from further crumbling.
Local leaders and citizens across the commonwealth are shaking their heads in frustration.
What’s more, even after all the scrimping, scraping, cutting and slashing, the CERS pension plan remains only 58 percent funded and faces a $6.8 billion shortfall.
Firefighters, mayors, commissioners, judge-executives and magistrates wonder: When will lawmakers weed this overgrown budgetary garden?
Jim Waters is acting president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at firstname.lastname@example.org
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