Chris Tobe, a former Kentucky Retirement Systems trustee and author of “Kentucky Fried Pensions: A Culture of Cover-up and Corruption,” describes the commonwealth’s pension crisis as a “cancer eating its way through the whole state.”
This cancer has spread – from Louisville, where a judge ruled that Seven Counties Services – a mental health agency serving 32,000 clients that filed for bankruptcy – can pull out of KRS, to the Northern Kentucky city of Fort Wright, which is suing the system with claims of “illegal and imprudent” investment activities involving state retirement funds.
What’s needed, Tobe says, is for Frankfort’s legislative doctors to replace their spin machines with the pension-policy equivalent of X-ray machines – transparency laws requiring revelation of both individual benefits and administrative decisions related to investments of public-retirement funds.
“We can’t even begin to unravel this mess until we get some transparency and accountability, which will then make it more possible to make the tough choices that will – sooner rather than later – have to be made,” he said.
While bills have been filed in recent years that would open up the retirement system, they’ve not been pushed with the same intensity as legislation involving funding issues – including Senate Bill 2, the pension-reform measure passed during last year’s General Assembly.
This indicates that not enough policymakers understand the critical connection between transparency and tough choices – especially as it relates to difficult funding decisions.
Even lawmakers serious about addressing the pension crisis, which threatens to swallow our commonwealth’s economy like Pacman on steroids, think it’s somehow easier to solve huge costly challenges by allowing shady investments made in back-room deals or those gaming the system to escape unnoticed.
Yet by not putting transparency on the front burner, legislators actually make it harder on themselves and tougher to tackle the issue.
Had lawmakers previously passed transparency legislation filed by Sen. Chris McDaniel, R-Taylor Mill, Rep. Robert Benvenuti, R-Lexington, and Rep. Jim Wayne, D-Louisville, they very well could have set the stage for taking much-bolder action than Senate Bill 2, which made little more than a dent in the state’s $34 billion unfunded pension liability.
While Tobe believes that the legislature’s failure to fully fund retirement plans for the past decade is a major contributor to the system’s current condition, he claims that it will never be properly funded and kept solvent without the glaring light of transparency.
“Without it, it’s like a black hole that we’re putting money into,” he said. “You can have fair fights over how much more taxpayers are going to contribute versus how much more employees must kick in, but we can’t even begin to unravel this mess until we get some transparency and accountability – until there’s some trust in the public that if we do put more revenues into the system, we’re going to use them wisely.”
Such trust is not engendered with shenanigans like what happened in 2011 when Frankfort borrowed $800 million via pension bonds to shore up teachers’ retirement and health-care plans without public discussion or media attention.
“People in the Finance Cabinet didn’t even seem to know about it,” Tobe said. “And it’s not that what they did was illegal – it wasn’t – but there should have been a vigorous public debate about such a major funding decision, yet most people in government didn’t even know about it.”
Shouldn’t the public also know how the state’s retirement system arrived at the decision to invest more than $24 million in an equity fund that was charged with stealing millions from investors?
Lawmakers who want to effectively address Kentucky’s pension impasse must understand: getting a “second opinion” from taxpayers in the form of making pension information public will provide them with stronger support needed when the time for really tough choices soon arrives.
Jim Waters is president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at firstname.lastname@example.org. Read previously published columns at www.bipps.org.