KY Policy Blog

Plan to Front-Load Pension Payments Would Create Crisis in Next Budget

By Jason Bailey
December 1, 2017

The pension framework under consideration would require Kentucky to make excessive increased payments for pension liabilities in the next state budget — even beyond the huge new contributions the state just made in the current budget. If included in a revised pension bill, this overreaction to past underfunding would set up unprecedented budget cuts a few short months from now — especially if there is no new revenue on the table to make those payments possible.

The additional contributions come largely from shifting to what is called the level dollar read more

Additional Contribution for Retiree Health Benefits Is an Unnecessary Wage Cut

By Jason Bailey
October 24, 2017

The state’s proposed framework for pension legislation would require public employees to pay three percent more of their salaries toward retiree health benefits, the effect of which is the same as a three percent cut in wages. However, Kentucky’s retiree health plans are much better funded than most similar plans around the country, and the resources available for the plans are growing rapidly without the need for extra contributions from public employees who are already undercompensated.

The new contribution will cut wages by approximately $158 million annually for state workers read more

Film Industry Tax Credits are Growing Rapidly and Pose a Significant Threat to State Revenues

By Pam Thomas
October 23, 2017

In a recent important article, the Lexington Herald-Leader examined the proliferation of Kentucky’s film industry tax credits. The state’s law allowing the credits was amended in 2015 to reduce the minimum investment required, and to provide enhanced credits for productions that meet those requirements. At that time, we wrote about the dangers of expanding the program as legislators proposed.

The Herald-Leader article noted the state has awarded $90 million in tax credits from the time the program launched through June 30, 2017.  Of that total, just under $2 million happened read more

Pension Framework Makes Harsh Benefit Cuts, Adds Costs Without New Revenue

By Jason Bailey
October 18, 2017

The governor and legislative leaders released a framework today that makes substantial cuts to pension benefits for current workers, new employees and even retired teachers. It includes a shift to a 401k-type defined contribution (DC) system for future employees that is no cheaper than the current pension plan but will reduce retirement security and make it harder to attract and retain a skilled workforce. In addition, the framework calls for big new contributions to the plans without any new tax revenue to make that possible.

Major aspects of the proposal read more

Report Shows Kentucky’s Preschool and Kindergarten Programs Effective, Need Greater Investment

By Ashley Spalding
October 16, 2017

High quality early childhood education has long been understood to be an important investment with a significant return. While our state has done more in recent years to expand access to preschool and full-day kindergarten, a new report from the state Legislative Research Commission shows there is real need for additional investments.

Preschool

The report describes how effective our state’s preschool program is at preparing children for kindergarten — especially those from low-income households or who have disabilities. However, while full-day preschool is shown to be most effective just 40 read more

Group Provides Insight Into Growth of Kentucky’s Inmate Population

By Ashley Spalding
October 13, 2017

The Kentucky Justice Reinvestment Work Group, which held its third meeting this week, plans to propose criminal justice reforms in December for consideration during the 2018 General Assembly. The first step in this process involves exploring in-depth the drivers of our state’s high inmate population, with technical assistance from the Crime and Justice Institute (CJI) at Community Resources for Justice — an organization that has had success helping Louisiana and Alaska identify meaningful and cost saving reforms.

Our state’s criminal justice system is certainly in need of reform. As noted read more

Kentucky Will Face Transition Costs If It Switches to 401ks

By Jason Bailey
October 3, 2017

Proponents are claiming Kentucky will face no transition costs from shutting down its defined benefit (DB) pension plans and moving employees into 401k-type defined contribution (DC) plans. That assertion ignores why there are transition costs from closing a plan.

DB plans are pre-funded, as the governor’s staff recently noted in an email to the General Assembly that cited an article from the Reason Foundation. Being pre-funded means DB plans are not designed for new workers to directly pay for the benefits of retired workers. Looking at that fact alone, one read more

Decline of Private Sector Defined Benefit Plans No Model for Public Plans

By Jason Bailey
September 20, 2017

Calls to end Kentucky’s defined benefit (DB) public pension plans often refer to the move away from DB plans in the private sector and suggest the public sector should follow suit and become more “modern.” But along with the harm to private employees that has accompanied this trend, industry and government are apples and oranges when it comes to pensions. The decline in private sector plans results from increased regulation as well as economic changes and other differences that do not apply to public sector plans.

Decline hasn’t spread to read more

Small Tax Breaks’ Costs Add Up Over Time

By Pam Thomas
September 8, 2017

Cleaning up expensive tax breaks is essential if we are going to invest in a stronger Kentucky and restore funding to our pension systems. The biennial Tax Expenditure Analysis (i.e. tax break analysis) published by the Office of State Budget Director provides insight into how much we are spending and on what. According to that analysis, our current tax code provides more exemptions than it collects in revenues.  There are so many that the document is 154 pages in length and lists 269 separate tax breaks valued at over $13 read more

Proposed 401ks Cost More Than Kentucky’s Existing Pension Plans

By Jason Bailey
September 6, 2017

The 401k-type defined contribution (DC) plans proposed by PFM in their final report would cost more than Kentucky’s existing defined benefit (DB) plans, according to data from PFM itself and the systems’ actuaries. Under a switch, the state would be making bigger contributions for a plan that reduces the retirement security of its workers. That hardly makes it a solution to the state’s pension funding challenges.

The cost of the DC plan is higher in part because the existing pension plan for new employees is already inexpensive if funded on read more