HB 1

## Bill Information

House Bill 1

Title: An ACT relating to funding for the Kentucky Teachers' Retirement System, making an appropriation therefor, and declaring an emergency.

Sponsor: Rep. Greg Stumbo

Date Introduced: 6 January 2016

Final Resolution: Died in Senate Appropriations and Revenue Committee on March 24, 2016

## What Does It Do?

This bill deals with the funding of the Kentucky Teacher's Retirement System for this biennium (2016-2018) and every biennium forward. Rep. Greg Stumbo sponsored this kind of bill last year when the House adopted it. House Bill 1 is based on a proposal that KTRS presented to legislators in 2014. It's original intent calls for the Kentucky Asset/Liable Commission to issue up to $3.3 million billion dollars to take advantage of the system's investment gains beginning on July 1, 2015 and counting every year afterwards. The state is responsible for continuing to fund the Teacher's Retirement System pension fund starting on July 1, 2015 and going onward. This legislation would also make funds that are used for finance statutory benefit improvement for it to be re-purposed to used as debt funding service. The bill requires that the General Assembly establishes a contribution rate KTRS pension fund with direct state appropriations. These appropriations would be on a fiscal year basis of fiscal year 2016-2017 to fiscal year 2024-2025. The bill also notes that it is the intention of the General Assembly for biennial budgets after 2016 to use reductions in debt service because of previously issued bonds by the Teacher's Retirement System.

The bonds would give the state about nine years phase in additional payments in order to meet the the Annually Required Contribution (ARC). This bill, according to Stumbo, will give the help that KTRS needs but buying bonds and the state to eventually be on an ARC budget cycle.

## What are the Politics?

*This is a Democratic leaning bill.* The critical point in the bill's journey was it's third reading on the House floor on March 22, 2016, with HCS1, and HFA1. There was quite a debate for and against the bill, concerns that the state's base spending. House Floor Amendment #1 was filed after the bill was recommitted to the House Appropriations Committee. On the House floor for debate, Republican Rep. Brad Montell testified of House Floor Amendment #1 on March 22, 2016. He argued for the GOP implementations for funding KTRS long term. The amendment contains a four-year phase in plan to fully fund the ARC for KTRS, and to maximize federal dollars. Stumbo commented that plan should not be left in the Governor's hands. When it came to a vote of HB 1 having HFA1 enacted on it, the amendment was defeated 44-53. House Bill 1 as a whole passed 86-11 with Committee Substitute 1. This substitute removed the $3.3 billion bonding provisions and now the state must fully fund the Actuarial Required Contribution Fund annually using General Fund dollars. made it that It was then taken to the Senate Appropriations Committee, where it died due to a lack of action.

### Pros:

"KTRS can earn enough money to pay back the bonds and interest without putting the state at risk. Research has showed in other states that pension bonds have worked well. Teachers do not have social security and are are relying on pensions for them to survive", according to Stumbo. Stumbo said on the House Floor that the state needs to fully fund teachers because they do a lot for the state. They have paid more in to the state to help them in the past and House Bill 1 would give back to them. This bill would make it possible for them to receive the funding that they need on a timely schedule, and for the state to get out of some debt.

### Cons:

This bill affects Kentucky financially and they are already in debt. Concerns are that the bill is bringing up the same problems from previous years and that in practice, that the bill may not work in real life, nor provide any solutions for the future. The state would be going through a round-about cycle of having to borrow money to fund KTRS at their expense. The round-about borrowing that the state has to do in order to pay KTRS in another point of concern. Rep. Jim DeCesare, in his no vote of HB 1, without the amendment, stated that the bill will not work in the long term. He was hoping to use the Governor's budget cuts for funding KTRS, but "without any feasible long term solution, the state will be in a bind every two years."

## Major Changes During Process

House Bill 1 had **three** major amendments that completely changed the language of the bill.

**House Committee Substitute 1**- The amendment changes the language for the state to pay the actuarially required contribution rate for the Kentucky Teacher's Retirement System pension fund from the start of July 1, 2016. The reducing of debt service bonds that were previously issued to KTRS would be used to pay the state's share of the additional contributions. The budget biennium would be from July 1, 2016 until June 30, 2018. Any additional funding can only come from the state's general fund.

**House Floor Amendment 1**- This amendment was filed on March 14. The amendment requires a four year phase-in plan to the ARC rate for the Kentucky Teacher's Retirement System pension beginning on the July date listed above. Requires the debt service on bonds that KTRS previously has would be used to pay the state's of additional contributions under the 4 year phase-in plan. This would insert budget language that states that the twice-a-year biennium would be paid directly to KTRS. The bill would have urgent priority over any other bill during the 2016 Session.

**House Floor Amendment 2-** This amendment was read on the House floor on March 15 and was defeated. House Floor Amendment two is the same as House Floor Amendment one in terms of the language. The four year phase-in plan would be added to the ARC rate for the KTRS beginning July of this year. The State would use previously KRTS bonds to pay for their share under the 4 year plan. The biennium language for 2016-2018 is added as well. The only difference is that HFA1 and HFA2 amend different sections of Kentucky Revised Statues.

## Media Coverage

http://wmskamfm.com/house-speaker-greg-stumbo-files-house-bill-1-to-strengthen-the-kentucky-teachers-retirement-system/

http://www.ket.org/legislature/?archive&nola=WGAOS+017274: House Floor Debate 04.01.16

https://kychamberbottomline.com/2016/03/22/amended-bill-to-require-state-to-fully-fund-kentucky-teachers-retirement-system-passes-house/

http://www.wcpo.com/news/insider/no-decision-yet-from-ky-house-on-bill-that-would-affect-every-school-in-state

http://www.medicalleader.org/pmc\_news.html?id=8620

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