State’s generosity in pension benefits now coming home to roost during pandemic

Bluegrass Institute for Public Policy Solutions

Sunday, Sept. 27, 2020 — Downturns such as every state will experience due to the coronavirus pandemic often unmask the true price tag of letting the good times roll too fast and far in earlier years.

Kentucky is paying the good-times piper for its decision to dramatically increase pension benefits for state workers back around the turn of the century.

At the time, the economy was strong, riding the wave of a stock-market performance which produced abnormally high gains resulting in pension systems flush with cash.

The mask was ripped off when that bubble burst and recession moved in, exposing the weakness of our commonwealth’s pension-benefits structure.

The pension plan for state workers in non-hazardous jobs plummeted from more than 120 percent of the funding levels needed to fulfill its obligations in 1999 to less than 14 percent in 2019.

While Kentucky was spending extravagantly, other states were saving carefully, spending less – including offering more modest pension benefits to public workers – and thus positioning themselves more capable of handling unforeseen declines like a pandemic, for instance.

The latest Financial State of the States report by Truth in Accounting (TIA) deems Kentucky’s financial predicament as shabby enough to deserve an “F” grade largely because of the pressure exerted on its economy by pension liabilities unfunded due to past unrealistic and unaffordable promises.

TIA figures it would cost each Kentucky taxpayer $24,700 for the Commonwealth just to cover its current – and conservatively estimated – $32.7 billion in debt and wouldn’t result in them receiving any additional services or benefits.

Kentucky’s neighbors except for Illinois impose a much-lighter burden on taxpayers.

Tennessee is one of TIA’s “Sunshine States” this year, meaning it not only has the necessary funds to pay its bills but also dons a surplus amounting to $3,400 per taxpayer.

Yet while bill-paying during good times is essential, the difference between states’ savings may offer an even-better indication of their ability to weather unexpected economic slumps.

While Tennessee is projected to lose $6 billion in revenue because of the pandemic, its $7.1 billion in reserves puts the state in a much-more positive position than Kentucky, which is staring at a virus-related hit which TIA estimates could ultimately reach $5 billion.

The dire condition of Kentucky’s finances before the pandemic – which the TIA bases its report on – and the fact it has less than a half-billion in its Rainy Day Fund should be reason enough to give Congress pause before handing the state a wad of federal cash to do with as it pleases.

Why, after all, should taxpayers in Utah, which TIA claims has among “the most responsible financial management practices in the nation,” bail out Kentucky, which has been largely unwilling to make politically tough decisions needed to control its spending and debt?

Leftists pushing for a federal bailout whine incessantly about how Kentucky’s never recovered from the recession of the mid 2000s – a struggle which will be magnified by the pandemic, they grumble – and therefore needs extra help from Washington and perhaps even a tax increase on its own people.

Yet TIA reports that not only does Utah have “the best record among the 50 states in keeping expenses below revenues,” it also “has done that every year – since 2005 –even during the Great Recession.”

Not only has Utah’s conservative financial practices helped its taxpayers avoid the heavy burdens seen in states like Kentucky and Illinois, it also had a $5.4 billion surplus headed into this pandemic, which should help it cover COVID-19’s expected $4 billion price tag.

While all states will have coronavirus-related downturns, those properly prepared will likely be positioned to return to the road of economic growth quicker and more vigorously than those which failed to remove the mask sooner and face the reality of their failing policies.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.


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