Kentucky Pension Crisis: Cost of pension study doubles in 10 months

The price of a controversial study of Kentucky’s public pensions more than doubled to nearly $1.2 million after Gov. Matt Bevin hired outside consultants last year — and it might keep rising.

The Bevin administration agreed last October to pay $556,300 to PFM Group Consulting of Philadelphia to analyze the state’s three retirement systems and suggest solutions for their funding shortfalls.

Spending records show the administration approved $115,000 more in February so PFM could retain two other consulting firms, Cavanaugh Macdonald and BPS&M, for assistance. The administration added $366,330 to the contract in July for unspecified additional “work product,” records indicate, bringing the total so far to $1,162,630. The firm’s contract continues until June 30, 2018.

“Frankly, I didn’t know what we had paid them because nobody has told us anything,” said state Rep. James Kay, D-Versailles, a member of the Public Protection Oversight Board. “Someone said something to me about it approaching $1 million, which was news to me. I didn’t realize it had gone over $1 million.”

The current two-year state budget authorized Bevin to spend up to $3 million on an audit of the state retirement systems, so in that context, “the PFM contract actually came in well under budget,” Bevin spokesman Woody Maglinger said.

Maglinger declined to say how much more, if anything, the state might pay the consultants. But groups representing retired state workers said they believe the meter is still running.

“Their contract runs through 2018,” said Larry Totten, president of Kentucky Public Retirees. “I suspect we’re going to see these guys hanging around here through the special session on pensions and the next legislative session at least, assuming their contract isn’t renewed.”

The retiree groups raised several concerns about the work performed by PFM before it issued its final report on Monday, recommending sweeping changes in pensions for public employees and school teachers, including a switch to defined-contribution 401(k) plans and a raise in the retirement age to 65.

“I had thought the scope of this contract would include outreach with the affected groups, but that never happened,” said Jim Carroll, spokesman for Kentucky Government Retirees.

“We offered on several occasions this year to meet with PFM, to meet with Mr. (John) Chilton (the state budget director), to discuss different issues like a clawback of benefits, like cost-of-living-adjustments, like the terms of the inviolable contract” that legally guarantees certain retirement benefits, Carroll said. “Nobody chose to meet with us. It was not a very transparent process. Then, when you read their final report, the inviolable contract, for example, is hardly addressed. It makes you wonder what all this extra money was used for.”

When the legislature last made changes to the state pension system in 2013 with Senate Bill 2, “there were multiple public hearings where different groups were invited to present their views,” Carroll said. “Nobody was entirely happy with the results, but everyone felt like they had a chance to contribute. That isn’t what happened here.”

Totten said PFM’s report appeared lopsided because it only addressed what cuts can be made to public employees’ and teachers’ retirement benefits, not what additional revenue the state could raise in coming years to pay down the tens of billions of dollars in pension debt.

“There’s a revenue side to this equation, too,” Totten said. “We need to find more more money to help pay for this. But they weren’t asked to look at revenue.”

Revenue ideas could be coming. The Bevin administration this week gave a contract to the Louisville law firm of Frost Brown Todd to “research various tax reform scenarios” on behalf of the state budget office. The initial price of the one-year contract, which can be renewed for two more years, is $75,000. A final report on possible state and local tax options is due to the Bevin administration no later than Sept. 30 under the contract.

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