By Madelynn Coldiron
With a change in Senate leadership, potential committee reshuffling and a more Republican House, the actions of 2013 session of the General Assembly are difficult to predict, KSBA’s governmental relations director said.
“I think that this session is full of unknowns,” said Shannon Stiglitz.
One of those unknowns is the extent to which the legislature will deal with an issue that has been gathering speed: public pension reform. The Kentucky Public Pensions Task Force, consisting of legislators, has heard reform options from a pair of think tanks. While their work excluded the Kentucky Teachers Retirement System, it focused on the Kentucky Retirement Systems, which includes the County Employees Retirement System that covers school district classified employees.
Over the last decade, school board contribution rates to CERS have increased 158 percent – reason enough for school leaders to closely follow task force developments.
Stiglitz said the legislature must address the current unfunded liability of the public retirement systems and then take steps to ensure the health of the system for future employees.
“The goals would be for us, to balance the benefits our classified employees receive in order to recruit the best and brightest for those jobs and to protect funding going to the classrooms by trying to control or slow down the increasing contribution rates for the CERS,” she said. “These two things definitely need to be balanced.”
Those increasing CERS contribution rates put a dent in school district budgets, said Dwight Ross, McCreary County Schools’ chief financial officer, both through regular programs and grant-funded projects.
“Because the more we have to put into retirement for those classified personnel, the less effect the grant has for us,” he said. “It’s the same way with your general fund, food service fund, any fund. It’s a hit on all of them. It can lead into a pretty good chunk of change for just a small increase.”
A couple of options for erasing the unfunded liability – a bond issue and a one-time appropriation – would not affect CERS since the state does not contribute directly to that system. But any additional appropriations to bolster the retirement funds could come at the expense of other state services.
“One of the things that school boards have to consider as well is, if we don’t address this, how does that impact our education funding overall as the state’s ability, purchasing power, is decreased by the need to pay the rising costs of pensions,” Stiglitz said.
Solutions that would affect future employees also could create problems for school districts.
Stiglitz is concerned about the effect on morale if benefits were reduced for future bus drivers, cooks, aides and the like, while benefits for certified staff were unchanged, “How does that impact the school board as the employer?” she asked.
KSBA is studying options presented to the task force and is looking at how some of those options are working in other states – including hybrid defined contribution/defined benefit plans and a relatively new system called cash balance in which investment returns above a set level are plowed back into both employee retirement accounts and the fund itself.
“All of these things have to be evaluated before we can make a clear statement on where we want to see the CERS system. KSBA is being very deliberate in these evaluations,” Stiglitz said.
The association also is conferring with groups that represent other CERS employers – the Kentucky Association of Counties and the Kentucky League of Cities –as well as other education partners to see if they can reach consensus and team up on the issue.
The CERS is actually the bright spot among the three public retirement systems that comprise the Kentucky Retirement Systems. As of June 30, 2011, according to a draft actuarial valuation report, its nonhazardous fund was at 63.1 percent of its funding level, compared with the state employees’ nonhazardous fund at 33.3 percent. The insurance fund similarly was funded at 46.6 percent for the county employee system, compared with 10.6 percent for the state worker system.
While employer contributions to the state police and state employee systems have historically been underfunded by the legislature, employer contributions to CERS by local governments and school districts have hewed more closely to actuarial recommendations.
Some local governments have proposed that CERS go its own way with an independent board, but Stiglitz said that is not likely, given the effect that would have on the KRS as a whole.
The 2013 session will likely see a rerun of familiar issues, including reform of the educator tribunal process, charter schools, changes to the teacher evaluation system, increasing students’ physical activity and allowing districts to raise the mandatory attendance age.
An emerging issue may be measures that address problems uncovered in highly critical school district audits by the state Auditor’s Office.
Stiglitz also expects a push for legislation to prevent districts from promoting third-graders who aren’t reading at grade level. It’s possible that bills also will be filed stemming from recommendations by task forces on middle school athletics, student technology and juvenile justice.
It is likely that major recommendations for tax reform made by a task force on that topic will not be heard until the 2014 session, when the biennial state budget will be approved.
Exceptions to that may be proposals to tax public and private retirement benefits – most are now taxed above $41,000 per year – and to give local school districts and local governments the authority to levy a local sales tax.