The Kentucky state workers’ pension system is by some measures the worst funded pension in the entire country with an estimated $70 billion dollars of unfunded liabilities. A recent audit of the pension system found that the plan has had $6.9 billion in negative cash flows since 2005.
At $40 billion, Kentucky teachers make up the largest portion of this unfunded liability. But even in the face of impending insolvency, many teachers in Kentucky are still protesting the slightest changes and cuts to their compensation that have been proposed in an effort to prevent catastrophe.
A minor reform bill recently signed into law that Governor Bevin admits “doesn’t come close” to solving the pension crises, and in no way changes current worker or past retiree’s pension or healthcare benefits, has been met with hysteria.
Many teachers and the Kentucky Education Association (KEA), the teacher’s union, are demanding the state raise revenue instead of cutting costs. The grand plan by the KEA and their lobby of teachers opposing pension reform is to take more money from those that are already responsible for paying teacher incomes - the Kentucky taxpayer. Instead of making concessions in an effort to fix their own underlying problem, they want a bailout. Not only would such a bailout set a very dangerous precedent, but for reasons I will explore below, it would be economically disastrous for Kentucky’s economy and private sector.
To put the $70 billion of unfunded pension liabilities in perspective, Standard & Poor's has ranked Kentucky's public pension as the worst-funded of any state in the US, with just 37.4 percent of the money it needs to pay obligations to retirees. Moody's has ranked Kentucky as having the third-highest pension debt when measured against a state's capacity to pay it off. With just over $10 Billion in total annual tax revenue for Kentucky’s General Fund, every state run institution and service in Kentucky would need to close for nearly 7 years just to fund past pension liabilities.
But despite this fact, the KEA and supporting teachers still insist that the state can somehow tax its way to solvency.