Here’s an update on the Kentucky Pension crisis that is playing out now in the Kentucky Legislature and how it will negatively impact Fort Wright families 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 its 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.
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.
Mayor Hatter
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.
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.
Dave Hatter is mayor of The City of Fort Wright.
Editor’s Note: The pension cost issue is one that applies to all public entities around the state. For example, in Northern Kentucky:
The Kenton County Public Library is facing a pension bill from the state for $450,000 more — to $1,350,000.
Kenton County Government’s bill is $1.7 million — and that doesn’t include the county attorney or commonwealth attorney.
Northern Kentucky University’s state-mandated contribution to the pension fund is $31 million, or 60 percent of the funds the university gets from the state.
The City of Covington is facing a $3.2 million pension bill from the state.
The City of Newport’s annual increase will be $1.2 million.
The City of Edgewood’s bill is an additional $423,000.
For the City of Erlanger, the bill is $1,910,710 (without a possible phase in).
I don’t know much about politics and don’t claim to but our teachers have pd in all these years and had politicians play games and kept putting this off year after year because they wanted something else done with the money that wasn’t there’s to spend in the 1st place is the same thing that they’re doing to social security. My husband pd in for all the jobs he work and they changed the law when he signed up the last 5 years was all that counted. Where did the other years go. I sure hope this is not what’s gonna happen to the teachers.
Teaching is a very hard job because teachers are the backbone of the community they serve. They are told what to do by the state and in return, they get a paycheck that doesn’t match their level of education. They spend a small fortune, using their own money without complaint, to furnish for their classrooms the necessities that are needed. They spend many hours outside the classroom attending training and working at after-school activities that take up precious time from their families. All they want is what they were promised and are very much entitled to it. Do the right thing and pay them what they are due.