Some tough decisions are ahead for health districts across the state as the agencies cope with a newly passed state law aimed at pension reform.
Kentucky is facing well-chronicled problems with the Kentucky Retirement Systems (KRS), which is considered the worst funded pension system in the nation. Recent estimates indicate the system is underfunded by tens of billions of dollars. Gov. Matt Bevin has said the shortfall approaches $60 billion, prompting a failed, controversial attempt in 2018 at revamping the way Kentucky provides retirement benefits to many state employees.
A law passed in 2018 aimed at reform was struck down by the Kentucky Supreme Court, essentially taking the state back to the drawing board when it comes to fixing the system.
This year, Bevin called a special session to address just a small portion of the pension crisis -- the retirement plans and pensions of employees of what are known as quasi-government agencies, such as health departments, regional universities and some rape crisis shelters. These quasi-government agencies were looking at skyrocketing required contributions to the pension system, prompting the General Assembly to pass House Bill 1, giving a one-year reprieve on those contributions.
Health district leaders across the state said they are appreciative of the one-year reprieve, but the fact is the burden of the increased contributions will soon be at their doorstep next year, with painful decisions afoot as to whether to keep their employees in the state system or get out while freezing benefits.
"That's really going to be a benefit for the health departments around the area, around the whole state," Carter County Health Department Director Jeff Barker said.
If HB1 wasn't passed, the Madison County Health Department pension contribution would have increased $1.25 million, or 11% of the department's FY20 budget.
Under provisions of HB1, most health districts have to decide by next year whether to keep their employees in the retirement system and face huge increases in costs or get out of the system. The new law also offers up the change for employers to "freeze" employee pensions and have them moved to a 401(k) style system, essentially allowing the agencies to leave and pay less than what they owe for their employees.
Madison County Public Health Director Nancy Crewe said their preliminary recommendation is to take a wait and see approach.
"Opting out is not the best option financially for MCHD, and staying in (Kentucky Employee Retirement System) KERS is better for our current employees and for MCHD employee recruitment and retention," she told The Register.
Crewe said for the Madison County Health Department to opt out of KERS, it needs to request an estimate of cost by Dec. 31, 2019. She added the health department's KERS liability will be more than $50 million, and it must pay for the actuarial cost of obtaining the estimate.
Crewe explained under an opt out scenario, the health department's monthly payments would be based on average 5-year payroll reported to the KRS and increase by 1.5% annually. She said the health department's total estimate of payments would be $78.6 million.
"As in the past, we will continue to carefully manage FTEs and watch our expenses," she said in an email. "These measures allow the MCHD to have the proper staffing capacity and deliver the same high-quality public health services as we always have to a growing Madison County."
Some health departments, such as the Ashland-Boyd County Health Department, are looking at tax increases to cover the increased costs for pension contributions.
However, Crewe said the Madison County Health Department, at this time, is not recommending an increase in the public health taxing rate.
"We believe continued economic growth and subsequent increases in the tax base in Madison County and the nature of our mix of services should generate sufficient revenue to manage increases in the KERS employer contribution rate," she said.
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The pension issue is of course a matter of significant public debate as the race for governor in Kentucky approaches in November. The incumbent, Bevin, said HB1 is a positive step forward.
"This legislation provides a viable path forward for our mental health agencies, rape crisis centers, local health departments and other community agencies whose dedicated employees provide critical services to citizens across the commonwealth," Bevin said after the law was passed. "While we have much work yet to do in addressing our $60 billion public pension crisis, HB 1 represents a positive step forward. I am confident that with continued collaboration and hard work, we can save our pension system and preserve it for the thousands of hardworking men and women whose financial futures depend on it."
His opponent, Democrat Andy Beshear, said in a visit to Ashland this week that "the bill that (Bevin) ultimately got passed isn't going to help anyone."
Still, decisions will have to be made in the coming months for health districts: stay in the system and face huge payment increases or freeze employee benefits and get out. The decisions will not be easy.
Jeff Howard, who recently stepped down as Department of Public Health Commissioner for a White House fellow position, told the Associated Press leading up to the vote on HB1 that the pension problems are putting huge burdens on the districts.
"Kentucky local health departments can't afford to buy out (of the system). They also can't afford to stay in," Howard said.
Jonathan Greene is the editor of The Register; follow him on Twitter @jgreeneRR. Puitt and Adkins reported from Ashland.