Pension Shortfall Affects Us All

The Pension Performance and Best Practice Analysis conducted by PFM Group Consulting, LLC has been released with recommended options for closing the pension shortfall. While there is no denying the impact these recommendations could have on all state employees, current or retired, it is important to note that action taken on many of these recommendations will impact all of us.

John Chilton, the state budget director, states that there are 3 options to consider for raising the nearly $1 Billion needed this year alone to fill the gap in a report made to the Public Pension Oversight Board. Those options are to cut spending, increase taxes, and adjust benefits. Neither the PFM report, nor the state budget director’s report explore any possible tax reforms at the state level to increase revenues for pensions.  

The state budget director’s report lists two alternatives for spending reduction.  If K-12 education (SEEK) funds, Medicaid, public protection, and debt service are spared from cuts then all other state funded programs like parks, transportation, infrastructure could see a 34.4% cut. These cuts would touch each one of us in ways we would see daily. If all programs except K-12 Education are protected from cuts then SEEK funding could be cut by 16.86% for a statewide reduction of $510 Million in education spending. This cut would impact our children for years.

To put it in terms of what that means for Shelby County Public Schools, a 16.86% cut in SEEK funding in a system with approximately 6800 students enrolled would see a loss of $4.26 Million in revenue. That loss of funding equates to as many as 72 teachers and staff district wide that would need to be cut even if the cuts were applied equally to all areas of district spending. Think about that. SCPS currently maintains a student to teacher ratio of 24:1. Such a cut in staff would increase the demands on the attention of a teacher by 1/3.

Even if SCPS levied the maximum property tax rate increase each year, it would take several years to make up the possible SEEK cuts.

I am not satisfied to stand by and watch this district regress. I am not satisfied to watch promises made to our students, our teachers, our police officers, our fire fighters, our public servants, and government workers broken by cutting benefits and spending.

I ask why meaningful tax reform that looks to increase state revenue is not a part of either the PFM report or the state budget director’s report? When individuals earning over $330,000 per year in Kentucky only pay 6% of their income in taxes and individuals earning $40,000 per year pay almost 11% of their income to taxes, the state is leaving gross amounts of income on the table and in the hands of top wage earners.

There is no single solution to the pension shortfall. Cuts to benefits for pension participants will not fill the hole alone and are simply not acceptable. Deep cuts to education can account for significant savings to the state but at a crippling cost to our students and the state’s ability to attract employers. New tax revenues that don’t favor top wage earners have to be part of the solution and a large part at that.

If PFM Group Consulting, LLC and the state budget director are willing to intentionally overlook increased revenue options in their reports as a means to honor our commitment to state employees then it is up to you and I to let our legislators and officials know that tax reform must be on the table.