(Bloomberg) -- Last year, thousands of Kentucky teachers staged a walkout and rallied against proposed cuts to their retirement benefits by
Republican Governor Matt Bevin and the state’s GOP-led legislature. In Tuesday’s gubernatorial
election, they’re getting the chance to fight Bevin head on.The tight race between Bevin and
Democratic Attorney General Andy Beshear could have big implications in a state with one of the worst-funded public employee retirement systems in the U.S. Kentucky’s efforts to rein in a $45 billion pension burden have been complicated by constitutional limits on cuts to benefits and lawmakers’ resistance to raising taxes -- tensions that are playing out in statehouses across the country.Bevin, who was elected in 2015, earned the teachers’ ire by trying to move them from a traditional pension to a 401(k)-style plan and for criticizing the walkout. He has the support of President
Donald Trump, who’s tweeted his endorsement and is holding a rally in Lexington Monday night. Beshear says he wants to maintain workers’ pensions and favors using revenue from new taxes on gambling and medical marijuana to shore up the system.Teachers have helped lead the charge against Bevin, donning the “Red for Ed” shirts that have become synonymous with teacher strikes across the country and knocking on doors after school. “We’re absolutely backing Andy Beshear - the guy who has fought with us and not the guy who has fought us,” said Jeni Bolander, a high school teacher who was among those who protested last year.What’s at StakeState officials in Kentucky underfunded the pension system for years, leaving a plan for non-hazardous duty employees just 13% funded in 2018, according to its financial report. The state has spent years grappling with the large-and-growing costs: In 2013, the state moved new state workers into a cash-balance plan, which combines elements of traditional pensions and 401(k) plans and determines the value of benefits based on individual accounts, according to the system.But teachers, argues Adam Koenig, a Republican state lawmaker, haven’t had to withstand any changes. “They’re the only ones that have not taken a haircut,” he said.In 2018, Bevin’s administration passed a law that would move new teachers into a hybrid plan, which was later ruled unconstitutional because it violated legislative procedures. Beshear, as attorney general, fought the law in court. The teacher’s pension is about 57.7% funded, according to its financial report.While moving the teachers into a hybrid plan would likely have cost the state more money in the first decade of implementation, over 20 years, it would have saved the state a total of $65 million per year, according to an independent actuarial analysis legislation.“We are one downturn away from literally being hand-to-mouth on our worst-funded plans,” said Jerry Miller, a Republican state lawmakerFuture BattlesBeshear has said he wants to use gambling-tax revenue to boost the pension system for teachers and first responders, saying this will include legalizing casinos, sports betting, and capitalizing on fantasy sports.It will “reduce the likelihood that counties must resort to raising local taxes on Kentuckians because of Governor Bevin’s failure to create new streams of revenue,” he said in a proposal.Efforts to legalize gaming have faltered in the state legislature, said Miller, who introduced a bill to legalize casino gaming last year. He said social conservatives in the legislature tend not to support gaming.Bevin has been quick to remind voters about how he fully funded pension contributions during his tenure, and he has pledged to “move forward to complete the fix of this system.”“I think everyone understands now,” said Beau Barnes, general counsel for the teachers’ pension. “This is an important issue for the commonwealth -- there needs to be full funding for these pension funds.”Passing pension legislation wasn’t always easy for Bevin, despite his party holding a majority in the state’s legislature. A measure providing some agencies the option to exit the state’s retirement system was held up in a months-long legislative fight and was only passed in a special legislative session after Bevin vetoed an early version of the bill.And if Beshear won, the GOP would still control the legislature, setting up even more tense fights over pensions.“No matter who ends up winning the governor’s race, we’re still going to have a fight on our hands,” Bolander, the teacher, said in a telephone interview.To contact the reporters on this story: Fola Akinnibi in
New York at fakinnibi1@bloomberg.net;Amanda Albright in New York at aalbright4@bloomberg.netTo contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, Michael B. Marois, William SelwayFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.