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Pension Separation, Opioids, Road Funds: Cities Share Priorities with State Lawmakers

Kentucky cities continue to call for separation of their retirement system from the Kentucky Retirement Systems as state lawmakers gear up for the General Assembly’s 2019 regular session.

Separating the County Employees Retirement System (CERS) from KRS is the top priority of Kentucky cities, according to Kentucky League of Cities (KLC) President and Mayfield Mayor Teresa Rochetti-Cantrell. She told the Interim Joint Committee on Local Government yesterday that while CERS is the KRS’s largest system with nearly $9 billion – or 75 percent – of KRS assets, CERS only holds 35 percent of the seats on the KRS Board of Trustees.

Talk of a possible CERS separation from KRS has been ongoing since at least 2016, based on news reports.

“Cities want to ensure that the promised made to (our) workers are kept,” Rochetti-Cantrell told the committee yesterday.

Legislation filed in 2017 by Interim Joint Committee on Local Government Co-Chair Sen. Joe Bowen (R-Owensboro) would have allowed the separation from KRS over a four-year period. Separate laws governing administration, benefits and investments of the CERS would have been established under Bowen’s Senate Bill 226, which stalled late in the session.

When asked today by Rep. DJ Johnson (R-Owensboro) about how KLC envisions the separation, KLC Deputy Executive Director J.D. Chaney said it would take time to separate CERS assets from KRS, which is why SB 226 would have provided for a four-year transition. Both systems could have retained their own management staff during that time, he said, allowing for resolution of any fiscal issues.

Johnson said he sees that as “a doubling of effort, possibly a doubling of cost. And I don’t see where the solution to take care of that is at this point.” But Chaney said most of the administrative costs, around 63 percent, are already paid by CERS.

Chaney said “traditional allocation of cost” would likely continue under separation, adding that KLC is flexible on that issue “if there was a compelling policy argument.”

Also commenting on the cost of separation was Rep. Arnold Simpson ( D-Covington). Simpson said recent figures shared by KRS before the state Public Pension Oversight Board indicate that separation may be cost-prohibitive. Chaney countered that KRS’s figures actually support CERS’s argument that separation is better for local government employees.

“If it’s going to cost the state system more for us to separate on an ongoing basis, it shows they have been relying on CERS assets to make those purchases…” said Chaney, adding that CERS alone should be able to recover “in short order.”

KLC’s second highest priority for the 2019 session is road funding – namely, getting more of the state’s gas tax revenue. Rochetti-Cantrell said KLC proposes that the 2019 General Assembly adopt a compromise between KLC and the Kentucky Association of Counties that would give cities and counties an equal 13 percent share of gas tax revenues above $825 million, which KLC reports was the total available for revenue sharing in fiscal year 2014.

“This helps ensure cities that are often the center of commerce and activity within a county have the funds necessary to ensure the upkeep and safety of high-traffic areas, while also holding counties harmless,” Rochetti-Cantrell told the committee.

Other KLC priorities for 2019 include state legislation that gives cities greater revenue flexibility and protection, support for cities’ continued fight against opioid abuse, and updating state laws that adhere to an outdated population-based city classification system updated in 2014.

Bowen advised KLC to carefully consider its top priority as session nears, cautioning the group on “the contentious nature of pensions.”

“My only counsel to you would be—and I know how much you’re advocating for that—but I sure wouldn’t sacrifice some of these other priorities in an over-energized effort maybe on that. That’s just some parting counsel to you as I walk out the door,” said Bowen, who is not running for reelection this year.

From the Legislative Research Commission