Kentucky's regional universities and quasi-governmental agencies were set to get temporary relief from skyrocketing pension costs under House Bill 358 after the House and Senate passed the bill on the final day of the session.
However, earlier this month, Governor Matt Bevin vetoed the bill saying parts "violate both the moral and legal obligation to retirees." Bevin said he intends to call lawmakers back to the state Capitol before July 1 to pass another version.
Many local lawmakers were disappointed in the governor's decision as it leaves agencies, such as the Madison County Health Department and Eastern Kentucky University, in limbo as they work to create budgets for the coming fiscal year.
"I think everyone was confused," said State Rep. Les Yates, R-Winchester. "There's many representatives and people who spent a lot of effort and time to come up with a solution. You knew you weren't going to have a good solution, but (the bill was) something to slow the bleeding.
"The Senate, the House, Governor's Office were all in agreement and that's why it passed at the 11th hour. To hear he vetoed it, it was shock."
State Sen. Jared Carpenter, R-Berea, said it is out of the legislators hands now on how to fix the issue. He said legislators will continue to organize agendas for the upcoming interim months.
"With the possibility of a special session and the veto already in place, the ball is the governor's court on how he plans to fix this issue," he told The Register.
State Rep. R. Travis Brenda, R-Cartersville, said the House and Senate included the pieces that the governor said he expected to see. Brenda said the Senate version of HB358 that Bevin wanted was guaranteed to break the inviolable contract with those employees, and then be challenged in court. He added the message House members were given was any measure to simply freeze the employer contribution rate at 49 percent until the budget session in 2020 would not be signed by the governor.
Brenda noted the Senate version the House did not agree to accept would have forced the quasi-governmental agencies -- health departments, rape crisis centers, mental health facilities -- out of the retirement system breaking the inviolable contract, or make them increase the employer contribution to around 84 percent.
"This increase in contribution rate would have bankrupted 42 health departments across the state in the next year, and an additional 20 or more the following year," he told The Register. "The governor and his staff need to work with House and Senate Leadership to come up with a plan that can pass the House and Senate before the governor calls a special session."
State Rep. Deanna Frazier, R-Richmond, said the House met with many of the quasi-government agencies and representatives of employees impacted by the proposal. She said the bill was a solid first step in providing relief to the agencies facing "crippling increases" in the pension plan employer contribution rate come July 1.
"Our goal was to provide stability for employers while maintaining the commitment to current and retired employees," Frazier said. "I would like to see the Governor work with us to craft a solution that ensures the balance between employers and employees. Most importantly, it is critical that an agreement is reached before calling a special session so a solution is in place."
For regional universities and quasi-government agencies, HB358 would have helped them control costs by freezing the KERS employer contribution rates one more year. Now, the rate is set to increase to 84 percent on July 1.
At the current 49 percent employer contribution rate, the KERS requires a $13.2 million contribution from Eastern Kentucky University. With the increase on July 1, that contribution soars to $22.8 million.
"Given our current budget constraints and funding forecast, this amount is unsustainable," said David McFaddin, senior VP for operations and strategic initiatives for EKU. "We are hopeful that the anticipated special legislative session will be called soon and find a workable solution before the start of the 2020 fiscal year on July 1, 2019. We will continue to work with the legislature in order to get a solution that allows us to continue our mission of being a school of opportunity and providing the education and life experiences that have helped so many students reach their potential."
While there was part of HB358 he didn't like, Brenda said there are many in his district and Madison County that rely on EKU to receive the education they need to become contributing, tax-paying members of society. He added there also are many employed by EKU.
"HB358 was not a perfect bill," Brenda said. "However, I received input from representatives of EKU that said without this measure to allow the universities to pay off their unfunded liability, and not increase their employer contribution for the retirement benefits, there would continue to be increases in tuition for students, and additional rounds of layoffs for university employees."
In 2003, EKU paid a little more than $1.3 million to KERS, or 1 percent of the university's entire operating budget. In 2018, the contribution was 5 percent of the operating budget.
For the Madison County Health Department, the pension contribution increase would equal more than $1.3 million and about 12 percent of its annual budget.
Madison County Public Health Director Nancy Crewe said she and Chief Financial Officer David Reed have kept the Madison County Board of Health apprised of all pension-related developments and their ramifications for the health department.
"Once we know the final outcome of any legislation passed in a special session, we will share an impact analysis with the Board," Crewe said.
Jonathan Greene is the editor of The Register; follow him on Twitter @jgreeneRR.