A bill that would authorize $3.3 billion in bonding to fund Kentucky’s ailing pension system for teachers passed the Kentucky House on Monday.
The teacher’s pension system only has 53 percent of the money it needs to make future payouts to about 141,000 retired teachers.
House Speaker Greg Stumbo, a Democrat from Prestonsburg, said the risks of borrowing to fund teachers’ retirements are outweighed by not taking action.
“We contracted, we promised, they relied upon that and gave us years of their lives and service to the children of our state,” Stumbo said. “We owe them that debt. It’s going to be paid.”
If the $3.3 billion bond authorization is approved by the Senate and is signed by the governor, it would be the largest bond issue that Kentucky has ever passed.
Several Republican representatives argue that the borrowing that much money would overburden the state’s debt load.
House Minority Leader Rep. Hoover, a Republican from Jamestown, compared the measure to using borrowed money to go to a casino.
“It will seem like a good idea in retrospect but if you lose, paying back the debt is going to be a big big problem,” Hoover said.
KTRS officials say that the state can assume a 7.5 assumed rate of return on investments in its portfolio and would only have to pay 2 to 4 percent interest in the bond market if the bill passes this session.
However, Stumbo admits, an economic downturn would make the bond a risky proposal because the rate of return could plummet.
“Could that happen? Yeah it could happen. Happened once before. But I don’t think it’s going to happen,” Stumbo said.
Rep. Brad Montell, a Republican from Shelbyville, said that’s reason enough to not go forward with the bond.
“Nobody saw that coming,” Montell said. “Not even the smartest people on Wall Street saw it coming and the KTRS says, ‘Trust us.’”
Montell argued that the legislature needed to identify the structural problems within KTRS instead of trying to find ways to put cash into the fund. In a floor speech, he said the amount the state contributes to the system only accounts for 10 percent of the problem.
“Why aren’t we addressing the other 90 percent of the factors that are driving this problem?” Montell asked.
KTRS officials say that if the state doesn’t issue the bonds, the state’s required contributions to the system will double by 2026.
The bill’s outlook in the Senate remains unclear. Senate President Robert Stivers, a Republican from Manchester, hasn’t expressed support for the bill.
A Senate committee has passed a bill that would cap the state’s debt by only allowing the state to spend 6 percent of the state budget on debt servicing.
The sponsor of that bill, Sen. Joe Bowen, a Republican from Owensboro said that his and Stumbo’s bill wouldn’t be able to coexist.
