Kentucky Pension Crisis

Posted on March 21, 2018

Dear Friends and Neighbors:

I want give you an update on the Kentucky Pension crisis that is playing out now in the Kentucky Legislature and how it will negatively impact you and your family if the arbitrary and capricious rate increases proposed by the Kentucky Pension Board are not addressed in this session of the General Assembly.

As you may know, the City has averaged roughly 11% of our total budget ($465,000) in pension contributions each year over the last 5 years. Unfortunately, actions taken by the Kentucky Pension Board in 2017 will increase our required contribution by a devastating $240,000 additional dollars per year as of July 1st, 2018. At approximately $705,000 per year, our pension contribution would amount to roughly 17% of our entire budget and would be the third largest expense for the City. And this is despite the fact that the City has always made the required contributions specified by the Pension Board.

While our City is in outstanding financial condition, the new rate increases are simply unsustainable. While the class action lawsuit the City filed several years ago to separate CERS (the County Employment Retirement System, which is the system that includes the City) from KERS (Kentucky Employment Retirement System) continues to wind its way through the courts, it will not address the immediate concern of the imminent and very negative impact these rate increases will have on our taxes and services.

You may recall an email I sent on this subject last year when Council was deliberating over our tax rates. After careful consideration and in preparation for these massive rate increases, we made the difficult decision to raise the 2017 tax rate from .270 per one hundred dollars of value to .283 per one hundred dollars of value. Put another way, if your home is valued at $100,000, the taxes owed for this year are $283. The important thing to note here is that even if we increase your property taxes by the maximum amount allowed by KY law without being subject to voter recall (4% + compensating rate), that will generate roughly $50,000 incremental new dollars per year.

A pension rate increase of $240,000 per year is nearly five times what we can raise in property taxes in a given year. And of course there are other expenses such as employee health insurance that are rapidly climbing each year as well. As you can clearly see, the numbers simply don't add up. Cities across the Commonwealth are very concerned about the ability to absorb these rate increases and the very existence of some cities is threatened if the Legislature does not act to implement Pension Reform and/or move to allow a "phase-in" of the rate increases.

The Kentucky League of Cities (KLC) has been hard at work to raise awareness about the crushing impact these rate increases will have and to lobby KY Legislators for Pension Reform. The list below comes from an email alert KLC sent out this week and contains some very important facts about this issue:

• When Fiscal Year 2019 begins July 1, cities alone will pay $107.6 million more in employer contributions for CERS. That is a 49.4% year-over-year increase!
The total amount cities will pay for Fiscal Year 2019, $325.6 million, is $63 million more than what all cities in Kentucky combined spend on streets and roads in a year. It is more than what all cities spend on fire and EMS services. It is also more than what all cities spend on solid waste collection and parks and recreation combined.
• Cities are revenue-limited; many cannot afford the sizable increase they will soon be asked to pay. Numerous cities will face a budget crisis that will force layoffs, cuts to essential services and/or tax increases.
• The current dispute over the components in Senate Bill 1 that make changes to the Kentucky Teachers Retirement System (KTRS) should not impact CERS. The systems operate independently. Likewise, changes to the Kentucky Employees Retirement System (KERS) and State Police Retirement System (SPRS) should not influence decision-making related to city governments.
• Senate Bill 1, the pension reform bill, does not include systemic structural changes for CERS as it maintains the current hybrid cash balance system put in place from Senate Bill 2 in 2013. The actuarial analysis states the savings for CERS will be “minimal.” In fact, the level-dollar funding included in Senate Bill 1 would result in significantly higher expenditures for CERS employers.
• Some legislators contend that a phase-in of CERS rates or similar types of rate relief cannot be passed without the passage of Senate Bill 1. That is not true. Rate relief for CERS is not connected to the status of Senate Bill 1.

Ultimately, the real cost of these rate increases which were arbitrarily forced upon cities will be borne by you, our residents and businesses. Cities will be forced to raise taxes and/or cut vital services including police, fire, roads and sanitation to survive.

With these facts in mind, City Council and I urge you to call your state legislators at 1-800-372-7181 to leave a message, and/or reach out via email or social media to politely but firmly urge them to support a "phase-in" of these mandated rate increases. Legislators need to know that the failure to pass rate relief for CERS employers will have a real and lasting impact on their constituents.

In Fort Wright, we are represented by:

Senator Chris McDaniel -

Representative Diane St. Onge -

Governor Matt Bevin -

Please contact your representatives today and tell them how these rate increases will impact our community. I cannot stress enough the importance of legislators hearing from our residents and businesses.

Thank you in advance,

Dave Hatter, Mayor
The City Of Fort Wright, Kentucky