House Speaker Greg Stumbo (D-Prestonsburg) says Kentucky should act now and issue $3.3 billion in pension obligation bonds to mitigate the $14 billion unfunded liability in the Kentucky Teachers’ Retirement System. His House Bill 4 would authorize the bonds in fiscal year 2016 to protect benefits and ensure solvency of the pension fund beyond the year 2035.
On the House floor yesterday, Stumbo admitted the bill would create the largest bond issue the Commonwealth has ever allowed. He said the plan makes sense because of historically low interest rates and the state’s current debt ratio.
Rep. Brad Montell (R-Shelbyville) offered an amendment to reduce the bonding amount from the proposed $3.3 billion to $520 million. Montell’s change was rejected on a roll call vote of 43 – 50. The Republican framed Stumbo’s plan as a “risky proposition” and he said he doubted bonding agencies would view it favorably.
House Minority Floor Leader Jeff Hoover (R-Jamestown) says the moral imperative to provide teacher pensions is undisputed, but he questioned the logic behind Stumbo’s plan to dedicate the bonding to the KTRS.
Kentucky Credit Ratings an Issue
Hoover presented a bleak picture of Kentucky’s rankings in the bond market. He said the state ranks seventh in the nation in debt as a percentage of gross domestic product, according to Moody’s, a premier bond credit rating company. The commonwealth also ranks seventh in debt as a percentage of personal income, eleventh in the country in debt per capita, and tenth in the nation in debt service to revenues.
The Minority Leader said HB 4 could exacerbate those standings and risk debt capacity for future capital projects. Hoover called it irresponsible to borrow more than $3 billion at a time when the statistics show Kentucky should take a much different course.
Speaker Stumbo was quick to rebut Hoover’s argument. He said the House floor debate on the bonding plan is just the beginning of what will likely be a protracted dialogue on shoring up the teachers’ pension fund. Stumbo added that his measure presents an opportunity to engage the Senate in a compromise plan.
Freshman Rep. Phil Moffett (R-Louisville) argued that all of the public pension plans need a permanent fix and that lawmakers should muster the political will to pursue more than a piece-meal approach to the problem.
Several lawmakers explained that their “no” votes should not be interpreted as an act against teachers, but should be seen as a call for a different method of pension funding that will prevent Kentucky from swimming in debt for generations.
Stumbo’s HB 4 passed, 62 – 31, barely getting the 60 votes it needed to move out of the chamber. The measure now heads to the Senate for its consideration.
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