Pension phase-in a relief, but not windfall, for governments

A law that allows municipalities to phase in massive increases in state pension costs is not quite a windfall for local governments, but leaders will gladly take it.

As part of efforts to shore up the state’s troubled pension system, municipalities and school districts were informed last year they would face increases of as much as 70 percent in mandated employer funding next year for the Kentucky Retirement System.

The legislature ultimately passed House Bill 362 that allows those increases for the KRS to be phased in over 10 years and caps the hikes at 12 percent per year. Gov. Matt Bevin vetoed the bill, but legislators overrode his veto April 13.

Without the phase-in, the city of Bowling Green was facing a one-year $3.2 million hike in pension cuts, or almost 5 percent of the city’s general fund budget. For Warren County government, the projected hike was about $1.27 million.

“Now it’s going to be about $332,000” for the county, Warren County Judge-Executive Mike Buchanon said. “It saves us about a million dollars. What that means is we have an opportunity to wade in (and) prepare to pay it over the course of five or six years instead of immediately. We are one of a handful of counties that could have paid” the full increase at one time, he said.

Local governments were reportedly facing having to make massive layoffs and cuts to pay for the hike.

Buchanon said Warren County was also facing having to make some personnel cuts if the hike was not phased in.

“It makes it much, much easier for all of us,” Buchanon said.

With the phase-in, the city of Bowling Green’s required increase drops from $3.2 million to about $770,000.

Bowling Green Mayor Bruce Wilkerson said the city is not looking at the decreased liability for the coming year as an excuse to increase spending.

“That’s not how we operate,” he said. “The whole pension (increase) will cause us to be that much more careful with our ongoing costs. As we continue to feel the effects of the increase, even though it will be phased in, it will force us to not be as aggressive” on spending.

The phase-in means “we won’t have to stop doing what we have planned to do, but the cost is neverending,” Wilkerson noted.

Buchanon likewise said the higher costs will have an impact on local services.

“It will reduce the ability for us to do some things in the future,” he said.

– Follow News Director Wes Swietek on Twitter @BGDNgovtbeat or visit bgdailynews.com.