New York-based agency Fitch Ratings issued a report detailing Kentucky’s need to shore up its pension funding, which faces a $40 billion shortfall.
Last year, Gov. Matt Bevin attempted to resolve the issue by inserting a pension reform into a sewage bill in the 11th hour of the legislative session, which was passed the next day.
The new law would reduce benefits for local government workers, hitting the teachers the hardest as it sought to switch new hires into a 401(k)-style plan and cut the number of sick days to be used toward retirement. Attorney General Andy Beshear, a Democrat who is currently looking to replace Republican Bevin as governor, contested the bill and it was struck down by the Franklin Circuit Court, appealed by Bevin, then rejected again by the Supreme Court months later.
Frustrated with the results, Bevin called a special session in December on the grounds that lack of reform would damage the state’s credit rating.
“For the sake of all current and future Kentuckians, the legislature must act immediately before the commonwealth incurs further credit downgrades that will cost tens of millions of dollars for taxpayers and further limit the Commonwealth’s ability to pay for essential services, including education and healthcare,” he said when he declared the late hearing.
In the report, Fitch denied this was the case.
“The special session ended without a bill; however, leadership indicated plans to revisit the issue in the regular session that began this week,” said Fitch in a release, adding that it expects further litigation should Bevin and the legislature try further reforms. “Given the modest savings anticipated, the proposed pension benefit changes, and any related litigation, would not affect the state’s rating.”
Should a new bill surface with similar provisions to the plan the court denied, Fitch says funding improvements will “emerge slowly” since new hires with the modified benefits will gradually replace legacy retirees. “These changes are unlikely to materially affect Fitch’s view of Kentucky’s long-term liability burden,” Fitch wrote.
Bevin told journalists at a press event the Fitch report was “the most nonsensical thing.”
“Read any credit rating agency report that has come out in the last 10 years about Kentucky and I would defy you to find anybody that doesn’t mention our pension crisis,” he told the Bowling Green Daily News before noting the state’s poor financial shape.
At 31% funded, Kentucky is among the worst-off in the country.
Fellow credit rating agency Moody’s previously described last year’s kerfuffle as a “credit negative” for the state, but did not lower its rating.
Proposals that don’t lower benefits include legalized gambling and marijuana to generate extra revenue, which are ideas Bevin is not on board with.
“If we think that smoking pot and gambling is going to pay our pension problem, we are kidding ourselves,” he said at Wednesday’s Kentucky Chamber Day Dinner, according to WKYT.com.
He is, however, OK with medicinal use of cannabis.
Rather than focus on pension overhauls, Fitch said it will base its view of the state’s rating on its budget practices and performances, as 2018 tax reforms created a “sizeable” profit.
“The challenge would be exacerbated by any downturn in the economy and revenues,” said Fitch.