Congress should quash states’ bailout expectations

It’s heartening to hear Senate Majority Leader Mitch McConnell, R-Ky., take a stand against using COVID-19 relief dollars to bail out public pension systems in states – including the commonwealth he represents – which have failed to enact long-needed reforms.

States’ pension woes, after all, have nothing to do with the coronavirus pandemic and therefore should not qualify for federal funding.

It would, of course, be naïve to ignore the possibility of political winds blowing so strongly that Congress is forced to acquiesce.

Still, the upside of any bailout is that it gives Congress leverage to force states which have foolishly promised unaffordable and unsustainable retirement benefits to workers to make politically tough decisions needed to ensure long-term stability in their pension systems.

Attaching such strings to federal assistance would be especially important here in Kentucky, which has the lowest pension-funding ratio among all states.

The Bluegrass State has less than 34% of the assets needed to fund benefits owed to current or retired public employees with a $46 billion liability – ninth-worst in the nation, according to an analysis by Wirepoints.

Fake news is offered by defenders of the status quo when claiming we just need to throw more money at the problem.

They are the same folks who would leap high buildings at a single bound for the chance to mooch off taxpayers from Connecticut to California to solve our state’s pension predicament – especially if it came free of requirements to reform the structure of retirement benefits.

Kentucky’s retirement systems – with the exception of the small plan for judges and politicians – remain below 60% funded despite the fact that, as Pew Charitable Trusts reports, contributions increased by a whopping 267% between 2007 and 2017, with record amounts of dollars dumped into pension buckets during previous Gov. Matt Bevin’s administration.

Even before the Bevin budget exponentially increased spending on benefits, Kentucky’s state and local governments more than doubled the percentage of their pension spending between fiscal years 2008 and 2017, according to the National Association of State Retirement Administrators.

While investments could always be better, brisk returns during the Trump economy – which, until COVID-19 hit, was bursting at the seams with record stock-market performances and unemployment all but licked – requires those blaming funding or investment performance for our pension problems to look Pew data reveals Kentucky’s total pension promises grew faster than 47 other states – including hapless Illinois – between 2003 and 2016.There hasn’t even been enough political will to change the structure for new employees by limiting taxpayers’ required contribution and protecting against future liabilities by increasing beneficiaries’ skin in the pension game, thus reducing overall uncertainty about Kentucky’s pension costs.

How will giving a blank check to the retirement systems and politicians eager to avoid the wrath of beneficiaries create any incentive for finding the political strength necessary to achieve meaningful reforms?

Public employees must not be blamed for simply accepting the benefits they’re offered.

They do, however, bear responsibility for blocking reforms to future benefits while demanding new employees all receive the same packages without considering the state’s ability to afford such retirement funding while also finding dollars needed for other areas of government.

Our commonwealth is morally bound to guarantee state workers receive past benefits already awarded.

However, it must cease and desist from overpromising future benefits which may not even be attainable since they must be determined by future returns on retirement-systems’ investments.

Obviously, such returns have not yet occurred. Therefore, how can a determination be made about what level of benefits the commonwealth can afford?

Congress also has a moral obligation not to force taxpayers in states which have taken steps to get their own pension systems under control to reward states like Kentucky and Illinois for failing to even seriously address reforms while expecting all along that Washington would bail them out.

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