Emergency surgery needed on metastasizing pension liability
I told the Kentucky Public Pensions Task Force recently that its “patient” is not only very ill, but that its sudden decline should cause a level of angst not unlike that of a doctor whose patient comes to him with a stomach ache and suddenly goes into cardiac arrest.
A recent series of Bluegrass Institute reports on the commonwealth’s deteriorating pension crisis reveals how the state’s unfunded pension liability went from less than $960 million – which most experts say is manageable – to nearly $34 billion in 2011.
The decline in “the patient’s” condition is even more pronounced in the Kentucky Employee Retirement Systems (KERS), which funds state workers’ pensions. In 2000, the KERS was robustly healthy at a 113 percent funding level. By 2011, it was only 30 percent funded.
For more than a decade, Jeanne Pierre Aubrey of Boston College’s Center for Retirement Research has followed and analyzed 126 different public retirement plans nationwide, including the KERS. Though Aubrey once praised Kentucky’s pension funding, today, it’s at Pension Hospice.
While there’s a lot of discussion about the health of his different “patients,” he said recently that the KERS was the only one whose solvency he doubted.
If I’m a state worker, I’m now reaching for my phone to call 9-1-1. I’m nervous and wondering: “Will there be anything left in the till when my first pension payment is due?”
This illness may call for a “specialist” like Democratic Rhode Island Treasurer Gina Raimondo, who, after little more than a year in office, used her position as retirement-board chairman to perform emergency surgery on her state’s public pension system – which had already caused one city to seek bankruptcy protection and the state to take over the finances of two others.
Raimondo’s surgical procedure included implementing retirement practices that mimic the private sector and that forced Rhode Island politicians to decide between raising $300 million worth of new taxes or implementing sensible benefit reforms to cover the first year’s gap between expected investment revenue and how much actually found its way to the state’s coffers.
Guess which one they chose? Hint: It wasn’t the tax-increase option.
Already, it’s paying off as Rhode Island has reduced its pension obligation by $3 billion and has lowered the state’s required annual contribution from $689 million to $414 million.
Despite giving Raimondo their support during her campaign for office, labor union bosses are now taking her to court, claiming the treasurer’s approach violates the state’s contract with its employees. They argue that she should have supported other, less dramatic measures before bringing the state workers plan into the 21st century.
Her response: “We’ve done pension reform when all they’ve done is tweaked something. This problem will not go away, and I don’t know what people are thinking. By the nature of the problem, it gets bigger and harder the longer you wait.”
So what do Rhode Islanders think of Raimondo’s efforts to bring some common sense to their state’s out-of-control pension system?
Apparently, they like it.
Raimondo is raising huge amounts of cash as she campaigns for reelection. Sometimes doing the right thing is politically difficult, but rewarding none the less.
Could that offer a hint that Kentucky voters also are ready for incumbents and their challengers to quit avoiding this issue – including the lavish pension systems for Kentucky’s politicians and judges –and address it head on?
Meanwhile, the 9-1-1 call has been made. The patient is en route.
Which room should we place him in one labeled: “tax increases, crowding out of services, deeper bonded indebtedness,” or in one marked: “living within our means, defined contribution plans and transparency” where a lasting recovery can succeed?