Ky. teachers seek help to keep pensions solvent

FRANKFORT, Ky. The Kentucky Teachers' Retirement System is proposing that the state issue billions of dollars in bonds next year to help stabilize its sorely underfunded pension plan.

KTRS suggested Wednesday that lawmakers consider two borrowing scenarios in the 2015 legislative session, and supporters say the proposals could reduce taxpayer cost in the long run while helping the system cope with $13.8 billion in unfunded liabilities.

One option involves a $1.9 billion bond to help fully fund the retirement system for the next four years and eventually decrease annual pension costs about $500 million by fiscal year 2026.

A second option includes a $3.3 billion bond that could fully fund the system for eight years and reduce annual costs in 2026 by around $445 million.

Both plans are based on 30-year bonds with interest rates in the range of 4 percent, and either option could be funded by re-purposing debt service and revenue streams that already exist in the state budget, according to KTRS.

IN EDUCATION: JCPS working on ways to improve teacher diversity

MORE EDUCATION NEWS: We cover the school beat

Beau Barnes, KTRS general counsel and deputy executive secretary of operations, said the system is not "wild about bonding." But he argued that liabilities are growing at 7.5 percent a year and compared the proposal to refinancing a home at a lower interest rate.

"We were asked what we could do for the pension fund without requiring additional dollars out of current budgets, and these were the only things we could think of," Barnes said. "We didn't really see any other alternative."

Critics of pension bonds argue that they amount to borrowing more money to pay off debt, and it remains unclear if the proposal can win support in next year's short, 30-day legislative session.

Sen. Joe Bowen, R-Owensboro, who is chairman of the Senate State and Local Government Committee, said Wednesday that "debt is always a concern" in the GOP-controlled Senate. "I can't speak for our caucus, but obviously we will put a critical eye on it."

KTRS has more than 141,000 members and $18.5 billion in assets. But the system has experienced a negative cash flow since 2008 and is expected to sell off $1.3 billion in assets through fiscal year 2016 to pay benefits.

As of June last year, it had only 52 percent of the money required to pay out pensions in coming decades — down from 68 percent in 2008. Officials say the plan needs around $480 million in additional funding each year to address the shortfall.

House Speaker Greg Stumbo, D-Prestonsburg, said the proposal has "great merit" if the state can take advantage of favorable interest rates. But he also predicted that the current rates will not be available much longer, and "if we wait too long we will lose this window of opportunity."

He said that the plan may require a three-fifths supermajority to win passage in the 2015 General Assembly but urged the House and Senate to give it serious consideration.

Barnes said KTRS has yet to meet with Senate President Robert Stivers, R-Manchester, but that others in the Senate have been receptive so far.

Lawmakers, between 2010 and 2013, authorized $890 million in bonds for KTRS — a strategy that Barnes called a "huge success."

He said debt service from those bonds will start to decline in 2017 and could be redirected to new borrowing. The state could also free up money by tapping funds in the budget related to cost-of-living adjustments and sick leave liabilities, Barnes said.

Yet, he also cautioned that neither bond proposal provides a permanent long-term solution for the system.

Meanwhile, Randy Wieck, a U.S. history teacher at duPont Manual High School in Louisville, has filed a lawsuit demanding that KTRS do more to seek funding and communicate its financial problems with members.

Reporter Mike Wynn can be reached at (502) 875-5136. Follow him on Twitter at @MikeWynn_CJ.