Public Pensions to Benefit from State Surplus
Kentucky’s $130.1 million General Fund surplus from last fiscal year will go toward the state’s ailing public pension systems, state budget officials told lawmakers Tuesday.
Deputy State Budget Director Kevin Cardwell told the Interim Joint Committee on Appropriations and Revenue that $70 million of the surplus has been appropriated to bolster the medical insurance fund under the Teachers’ Retirement System in Fiscal Year (FY) 2020. The remaining $60.1 million, he said, has been appropriated in FY 2020 to help pay down the unfunded liability of the Kentucky Employees Retirement System nonhazardous pension fund—currently the state’s most underfunded public pension plan.
The appropriations were made by the 2018 Kentucky General Assembly with the passage of 2018 House Bill 200, which contains the 2018-2020 state Executive Branch budget bill.
The $130.1 million comes from $194.5 million in General Fund revenues received in excess of estimated revenues for FY 2019, according to Cardwell, who said the surplus and revenue excess “are never the same.” Other dedicated revenues and/or necessary expenses were taken from the revenue excess before a surplus was declared.
Governor’s Office of Economic Analysis Deputy Executive Director Greg Harkenrider told the committee that a more robust-than-expected economy, tax changes, and a “very strong fourth quarter of FY 19” all receive some credit for the $194.5 million in excess revenue. He also credited a revenue excess of $119.8 million in FY 2018 for helping reach that over $194 million mark.
“A good part of it is the $119.8 million in FY 18,” said Harkenrider. ”That lowered the growth needed to hit the FY 2019 estimate.”
Preliminary planning for FY 2020 and the next four fiscal years shows what Harkenrider called “kind of tepid growth” in the state’s General Fund. The independent Consensus Forecasting Group, or CFG—which issues official revenue estimates to help the state finish the biennial budget process—is anticipating much less robust future General Fund growth than the 5.1 percent growth realized in FY 2019, said Harkenrider.
Although the CFG’s official revenue estimates will come in December, Harkenrider said the group’s planning estimates from Aug. 9 show growth of only 1.5 percent for FY 2020 and 2.2 percent for FY 2021, with relatively flat growth through FY 2024.
That’s in comparison to what State Budget Director John E. Chilton calls an economy that has “been doing pretty well” the past two years.
“This information that we’ve got from the Consensus Forecasting Group indicates that the growth is going to moderate over the next few years,” said Chilton, added that the CFG’s view is “consistent” with what other states are expected to face.
“The growth will be somewhere around the 2 percent that we’ve discussed,” he told lawmakers.
Also discussed were certain revenue sources and other funds, including the state Road Fund for transportation needs and the state Budget Reserve Trust Fund or “rainy day fund,” which shores up the state budget. Cardwell told lawmakers that the rainy day fund balance was $129.1 million at the end of FY 2019, and could be as large as $306 million this fiscal year depending on certain factors.
Rep. Jason Nemes (R-Louisville) asked Chilton how projected growth in Kentucky’s rainy day fund for FY 2020 compares with other states. The State Budget Director said Kentucky’s budget reserves are not expected to meet the level that most states try to reach or to maintain.
“The target for many is 5.5 percent (of a state’s General Fund). That would be around $750 million in Kentucky,” said Chilton. “Some are higher, actually, and I think that the states around us are probably a little bit better off that we are in that regard.”
From the Legislative Research Commission
Photo: State Rep. Steven Rudy (R-Paducah) at the meeting (LRC)