Kentucky's worst-in-the-nation public pension system is now worse than ever.
The state's pension debt grew by roughly $2 billion on Thursday after the retirement system's governing body made dramatic changes to long-held investment assumptions. As a result, state taxpayers will have to pay significantly more into the system to keep it solvent. Just how much more will not be known until later this year.
The bleeding is likely not over. The changes approved Thursday apply to the system that covers most state workers. But regulators are mulling similar changes to the system that covers local government workers. If approved, those changes would likely add another $2 billion more to the debt and force taxpayers to pay even more to keep the system afloat.
The debt is growing because the retirement system's new governing board, which was recently restructured by Republican Gov. Matt Bevin, has a much more pessimistic view of the future. The board predicted money from the retirement systems' investments would fall, while the number of employees contributing to the system would stay flat.
"We have been aggressive in our assumptions for many, many years. Aggressively wrong," board chairman John Farris said. "This is our opportunity to be conservative, to try to get our retirees paid."
The new assumptions mean Kentucky is now $13 billion short of what it will owe retired workers over the next 30 years, up from $11 billion. State agencies will have to contribute nearly 78 percent of each employee's salary to the pension fund, up from 50 percent. That means for every state worker earning $50,000 a year, taxpayers will owe the pension fund $39,000.
The changes will put tremendous pressure on the state budget. Kentucky is already on pace to end the fiscal year next month with a $113 million shortfall, and that's after lawmakers approved spending cuts of 4.5 percent for most state agencies in the most recently enacted budget. Lawmakers are scheduled to return to Frankfort in January to craft spending plans for the next two years.
The news will likely bolster Republican Matt Bevin's call for a special session of the state legislature with the goal of rewriting the state's tax code to generate more money for the pension system. In a news release, Bevin's office thanked the retirement system board "for providing an honest and realistic view into our crippling pension crisis."
But Republican legislative leaders have not been enthusiastic about tax reform. The GOP just wrested control of the House of Representatives from Democrats in November, giving them complete control of state government for the first time. Republican House Speaker Jeff Hover told The State Journal last week that "I'm not convinced, in all honesty, that we will have a special session."