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December 18, 2018 8:20am

Governor calls special session to tackle pension crisis

Yesterday afternoon, Governor Matt Bevin called the Kentucky General Assembly into a special session that began at 8:00 pm in the evening. The session will focus on Kentucky’s multi-billion dollar public pension crisis. Bevin cited the negative impact of looming credit downgrades on the Commonwealth’s fiscal health as a key reason for calling the session. Both chambers gaveled in last night shortly after 8:00, and two new pension bills were filed in the House three hours later. One of these bills, House Bill 1, serves as a slightly slimmed-down version of Senate Bill 151 from the 2018 regular session, which the state Supreme Court struck down on procedural grounds earlier this month.

Read about the background to the special session, GLI’s advocacy efforts on pension reform, and the new pension bills below.

Background: In the 2018 regular session, lawmakers passed into law Senate Bill 151 (SB151), which introduced several reforms to Kentucky ailing public pension system – many of which were long-term GLI priorities. Some of SB151’s most important reforms were level-dollar amortization, limitations on the use of sick days in calculating benefits, and transitioning new TRS employees into hybrid cash-balance plans. Collectively, these reforms led Moody’s Investors Services to describe SB151 as “credit positive for the Commonwealth, local governments and universities.” Kentucky’s credit rating, which impacts the ability of the state, state agencies, and local governments to borrow money, has seen several downgrades in recent years due to the state’s estimated $40 to $60 billion in unfunded pension liabilities.  

Shortly following SB151’s passage, Attorney General Andy Beshear initiated a lawsuit against the bill on several grounds, including both substance and procedure. In early December, the Kentucky Supreme Court issued a final ruling, declaring SB151 unconstitutional due to the manner in which the General Assembly passed it. The court was silent on the bill’s contents.

In reaction to the pension ruling, GLI expressed disappointment and called for immediate action to address the pension crisis. Sarah Davasher-Wisdom, GLI’s Chief Operating Office, stated:

Although today’s Kentucky Supreme Court decision was based on procedural grounds, GLI views this ruling as a major step in the wrong direction.  Now, Kentucky must act in 2019 to address the unsustainable costs of Kentucky’s public pension systems. Long-standing priorities of GLI, like level-dollar amortization for paying off unfunded liabilities, cap on factoring sick days into benefits, and introducing hybrid cash-balance plans into the teachers’ retirement system, are vital financial reforms. Kentucky can no longer afford credit downgrades and crowding out essential budget priorities, like public education and infrastructure investments. GLI will work with the General Assembly to save our public pension systems and put our state on a more secure financial footing.

Special Session: Rumors of a possible special session began circulating not long after the Supreme Court ruling. Section 80 of the state Constitution authorizes the Governor to call a special session and to set the topics of discussion. The length of the session, however, is the prerogative of the legislature. Kentucky governors have called about 50 special sessions since 1940.

Governor Bevin announced the 2018 special session in a press conference yesterday afternoon. In his remarks at the press conference and in the official proclamation declaring the special session, Bevin noted the negative impact of the pension crisis and the Supreme Court ruling on Kentucky’s already-abysmal credit rating as well as on the state’s ability to support important economic development priorities like education and infrastructure.

The session is expected to last at least until Friday, though that could easily change. If House and Senate leadership are unable to secure the votes needed to pass the new pension bills, the session could go longer. Alternatively, Representatives Adkins and Hoover have already filed a resolution calling for the session’s immediate adjournment.

The New Pension Bills: Roughly three hours after the House and Senate gavelled in, two new pension bills hit the ground. Louisville Representative Jerry Miller (R) sponsored both of them.

The first, House Bill 1, is a trimmed-down version of SB151. It includes important GLI-backed provisions such as transitioning future TRS employees into hybrid cash-balance plans and limiting the use of sick days in calculating retirement benefits but excludes other key elements such as level-dollar amortization. 

The second, House Bill 2, addresses the benefit factor for TRS employees and reestablishes the CERS phase-in from House Bill 362 in the 2018 regular session, which GLI supported.

Key Context: Because House Bill 1 has an emergency clause, which would enable it to take effect immediately after receiving the governor’s signature, a constitutional majority in both chambers is needed for passage: 51 votes in the House and 20 in the Senate. The final vote on SB151 in the 2018 regular session was 49-46 in the House and 22-15 in the Senate.

What you can do to get involved: Let your legislators know how the Greater Louisville business community feels about the importance of pension reform by using GLI’s new advocacy email tool or leaving them a message at 1-800-372-7181 .

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