Kentucky mayors call for action to stem pension crisis

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— FRANKFORT — The mayors of Kentucky’s two largest cities called on state lawmakers Monday to enact reforms that would help curb pension obligations that are crippling budgets in Lexington and Louisville.

Pension payments have ballooned over the past decade in Lexington and now account for 20 percent of the city’s annual budget, Mayor Jim Gray said. Lexington’s obligations were just 6 percent of the budget in 2000.

“Our pension costs have spiraled out of control,” Gray said during a news conference in Frankfort with mayors and other local leaders. “It is the biggest financial issue our city faces.”

Gray and Louisville Mayor Greg Fischer did not point to specific reforms they favor but urged lawmakers to take immediate action to prevent further unfunded costs. The cities are looking to state lawmakers for reform because the pension systems they pay into are guided by state laws.

Gray said stock market losses, people living longer and governments underfunding pension commitments have contributed to Lexington’s problems.

Lexington’s contributions to the city’s police and fire pension funds have multiplied by six over the past ten years, to $41 million annually. And Lexington pays another $16 million annually to county employee pensions, a payment that has tripled over the decade. The city has invested $136 million in bonds and $61 million in cash since 2009 to address the problem, but it hasn’t been enough, Gray said.

Fischer said Louisville’s pension obligations account for 15 percent of its general fund. Fischer said that figure was just 6 percent seven years ago.

“You usually hear about the pension problem in the context of a state problem … but this is a real local problem for us all,” Fischer said.

A legislative task force formed to address the state’s $33 billion unfunded pension liability has suggested repealing cost-of-living increases for retirees and moving state employees to a hybrid plan similar to a 401(k). The task force rejected a suggestion to invest in bonds to help pay for the shortfalls.

Republican Sen. Damon Thayer, who is co-chairman of the task force, said last month that a draft bill based on the task force’s recommendations would be introduced in the Senate in the upcoming General Assembly. House Speaker Greg Stumbo, a Democrat, said in November that he believed a proposal for pension reform would pass in some form in the next legislative session.

David Draine, a senior researcher with the Pew Center on the States, said cities across the country are paying increasing pension costs, which diverts funding away from city services, infrastructure and education. He said nationally, there is a nearly $1.4 trillion pension funding gap.

The Pew Center will issue a report on cities crushed by rising pensions on Jan. 16.

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