Kentucky Governor Vetoes Bill To Help Agencies Leave Pension System

Apr 5, 2018

Credit J. Tyler Franklin

Alarmed at the potential cost to taxpayers, Republican governor Matt Bevin vetoed legislation Thursday that would make it easier for agencies like rape crisis centers and mental health facilities to leave the state's troubled public pension system.

But the veto, the first of the 2018 legislative session, comes with a cost to local governments. The bill would have given city and county governments more time to pay massive increases in retirement contributions for their employees. Without that cushion, local government leaders say it would likely cause widespread layoffs and cuts in services.

Bevin said he likes the idea of giving cities and counties more time to make their payments. But he said he could not sign the bill because of the other provision, which he said could cost taxpayers up to $2 billion. It would require the state to finance the agencies' cost of exiting the system with no interest, something Bevin said would be "very problematic."

"These provisions, as currently written, will lead to cash flow issues and shift even more of the pension burden to future taxpayers," Bevin said in his veto message.

Lawmakers are on a 10-day recess for Bevin to sign or veto legislation. They are scheduled to return to work for two days next week, where they could override Bevin's veto. But Bevin urged them not to, instead asking them to pass a new law that would address his concerns.

Republican Sen. Chris McDaniel, who sponsored the bill, said Bevin's concerns are valid. But he noted the legislature wrote the bill because the agencies that want to exit the system can't afford to stay in it and they can't afford to leave it.

"The bill is an attempt to allow them an orderly method out while still being able to provide critical services that we expect of mental health agencies and rape crisis centers," McDaniel said.

Bryanna Carroll, director of governmental affairs for the Kentucky League of Cities, said the group is hoping to see "some type of action" from the legislature next week so local governments can avoid increases of more than 50 percent in their pension contributions. The increases are because the Kentucky Retirement System Board of Trustees updated its assumptions last year, predicting the state will make a lot less from its investments. Local governments asked the board to phase-in those increases, but the board refused.

"Cities are looking to the legislature to once again intervene and ensure local governments do not suffer from last year's inaction of the KRS Board of Trustees," Carroll said.

McDaniel said there is a "potential" for lawmakers to override the veto, adding lawmakers will have a "robust conversation" about it over the next week.