Half a million dollars and counting.
That’s the bill taxpayers across Kentucky are being asked to foot for pension spiking among public retirees as the state cracks down on the practice – a crackdown both sides agree has become an inefficient, bureaucratic nightmare.
Cities, counties, schools and other public agencies across Kentucky are receiving invoices for retirees the states believes “spiked” their pensions: in other words, padded their pay in the years before retirement in order to receive larger pensions.
Kentucky Retirement Systems (KRS) is asking local governments to pay the difference between what a retiree received and what he or she was entitled to. The average bill runs between $1,300 and $1,600.
“There’s tremendous exposure out there for public employers, and therefore the taxpayers,” said J.D. Chaney, deputy executive director for the Kentucky League of Cities.
In all, the bills total $570,000 – and the full impact isn’t even known yet. As of March 1, KRS had only evaluated about half of the 7,300 government employees who retired in 2014. Of the 3,500 or so evaluated so far, 10 percent were determined to have received larger pensions than they were entitled to.
The biggest bill is due in the Kenton County suburb of Villa Hills. The town of 7,400 owes more than $200,000 – nearly 10 percent of its annual budget. The city is in litigation over the issue.
“You’re not just penalizing the city of Villa Hills,” said Mayor Butch Callery. “You’re penalizing the citizens of Villa Hills, because that money could be used to pay for road projects and other things.”
The city of Florence was hit with a $2,445 bill last month for spiking by an employee of the city’s former water and sewer board who actually left the city in 2003, but didn’t retire until last year. The city paid the bill last month while also lobbying state lawmakers to change the current system.
Pension spiking has always been around, and in the past the cost was factored into what local governments pay into the pension system for their employees. In 2013, however, that changed as part of a broader reform package enacted by the state legislature to try and shore up Kentucky’s rapidly depleting pension fund.
But KRS questions whether pension spiking was really that serious a problem to begin with.
“With 14 months of data right now, our view is that pension spiking is not as significant an issue as our lawmakers thought it could be (in 2013),” said the agency’s director Bill Thelen.
As it turns out, taxpayers are on the hook on both ends of the process: Thelen said the cost in staff time and resources, as well as administrative hearings with cities, outweighs what the taxpayer-funded agency is collecting on the bills.
The average bill may run between $1,300 and $1,600, but it can cost up to $2,500 to collect on that bill, especially if a city or county wants an administrative hearing on the matter.
Both KRS and the league of cities agree something needs to change, but they disagree on how to go about it.
Thelen wants state lawmakers to do away with the pension spiking collections entirely. But Chaney said state lawmakers should pass a law that simply doesn’t overpay a retiree to begin with. (Other states, including Ohio, take the latter route.)
State lawmakers are divided on the right course to take, and they left Frankfort on Tuesday without addressing the issue – so taxpayers will continue footing the bill for a problem all sides agree needs to be fixed.
“It’ll be back as an issue next year,” Chaney said. “And it’ll be louder: there will be more cities, more counties, more boards, more state agencies affected.”