A bill to help prop up the Kentucky Teachers' Retirement System with $3.3 billion in pension obligation bonds fell apart Wednesday after state lawmakers failed to sign off on the proposal before the legislative session ended.
HB 4, which also called for phasing into the full actuarial required contribution rate, passed the House on Feb. 23 but met resistance in the Senate. State senators voted earlier this month to create a task force of legislators to study the funding level and benefits provided by the $18.1 billion Frankfort-based pension fund in lieu of a bond issuance.
The House refused to concur with the Senate's changes to the bill and the issue moved to a conference committee of senators and representatives who could not produce a compromise bill by the end of the legislative session Wednesday.
Beau Barnes, KTRS' general counsel and deputy executive secretary, previously told Pensions & Investments that the pension fund is “not crazy” about issuing bonds; however, the pension fund has been operating on a negative cash flow basis since 2008 and “definitely needs some additional funding.” KTRS' funding ratio is 53.6%.
The Kentucky Legislature does not convene again until January.
Following Wednesday's session, state Rep. Greg Stumbo, House speaker and sponsor of the bill, told reporters he expects the House will be back with a “similar proposal” and believes representatives are open to a study of the pension fund as recommended by the Senate, provided the study group is “fair-minded and unbiased,” a recording provided by one of Mr. Stumbo's spokesmen showed.
“It's a huge challenge borrowing money to pay a debt,” said Sen. Joe Bowen, who added that the size of the issuance was “unrealistic.” At one point in committee, a lower amount was proposed. However, it still seemed unlikely the bond issuance could get out before the Federal Reserve increased interest rates, Mr. Bowen said in a telephone interview Thursday.
Mr. Bowen further noted that representatives rejected a proposal to infuse $50 million into the retirement system.
There are “different places where we could put together $50 million to infuse into the system now” that does not put the taxpayer “on the hook” and is “not arbitrage,” Mr. Bowen said. However, representatives rejected that proposal, arguing that the amount proposed was too small, he said.