Charles Eliot, the longest-serving president in Harvard University’s illustrious history, once said “the capacity to inflict pain” is a university leader’s most important quality.
Could it also be a chief executive’s greatest asset—especially if he’s elected to lead a commonwealth that’s “already become essentially insolvent?”
That’s how Gov. Matt Bevin described Kentucky’s fiscal condition, inflicting—by his assessment—necessary “pain” while fulfilling his constitutional duty to unveil a two-year spending plan.
Listening to Bevin’s budget address certainly was painful for Kentucky’s university presidents.
However, dare I risk offering a form of a potential Bernie Sanders-ism by suggesting the governor’s assessment also offered taxpayers the rare hope that “shared-pain” policies might on the horizon?
Universities and much of state government will deal with $650 million worth of spending cuts during the next biennium. Universities also face a different funding model in the future that likely will be tied to graduation and retention rates.
The governor duly noted the source of all this funding pain: a public-pension crisis on a downward spiral reminiscent of the rate of descent experienced recently by the University of Kentucky Wildcats, who blew a 21-point lead en route to a frustrating loss to arch-rival Tennessee on a basketball court in Knoxville.
In only 15 years, the Kentucky Employees Retirement System (KERS) has lost its “lead” as the nation’s healthiest government-run pension fund and become one of its sickest patients—from being more than 113 percent funded in 2000 to less than 20 percent in just 15 years.
In fact, KERS’ slide is picking up speed with its funding level dropping from 19 percent in November to December’s 17-percent level. The system is selling assets to cover payments to retirees.
The Kentucky Teachers’ Retirement System (KTRS), which was more than 80 percent funded in 2000—a level experts consider “healthy,” has lost half of its funding.
The commonwealth’s entire pension structure teeters on the precipice of an unfunded liability approaching $40 billion.
Which makes me wonder: Did Bevin inflict enough pain during his budget address?
While he basked in the political glow of announcing an additional $1.1 billion in pension funding and adjusting expected investment returns, the governor said little, if anything, about rich benefits handed out to still-young workers.
It’s a system where an investment-advisor acquaintance of mine is advising a client who’s retiring on the taxpayers’ dime at the tender age of 49 after working 27 years and will receive monthly KTRS pension benefits of $8,345, adding up to more than $100,000 annually.
KTRS retirees usually choose a retirement plan that allows spouses to continue collecting the benefits when retirees die.
In this particular case, either the retiree or his spouse, currently age 46, will receive the entire Cadillac pension benefits as long as either lives.
He noted that if either the beneficiary or spouse lives to age 87—the life expectancy in this case—they will collect taxpayer-backed pension checks for 41 years, 14 years longer than the retiree actually worked in the system.
The KTRS plan, including annual 1.5 percent cost-of-living raises, will have paid out $5.6 million to this retiree or his spouse. This doesn’t even include a lifetime of practically free health insurance that appears in the form of monthly KTRS-funded subsidies worth nearly $8,000 a year.
All of this is just for a single retiree and their spouse in one of the commonwealth’s plummeting pension plans.
If even the reform-minded Bevin and legislators don’t close the back door while bringing more in the front door, what—at the end of the day or conclusion of a budget session—has been accomplished…except more pain for Kentucky taxpayers?
Jim Waters is president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at [email protected] Read previously published columns at www.bipps.org.