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June 25, 2008

Hedge funding

The Mayor’s office on Friday sent a letter to the Metro Council announcing that the city would likely have an extra $5 million to work with as it hammers out details of a budget. The announcement was no doubt welcome amid the council’s budget hearings in the worst fiscal climate since the city-county merger in 2003. The additional money would come from a special session taking place in Frankfort this week, convened to deal with pension reform that most agree did not get proper attention during this year’s regular session of the General Assembly.

Gov. Steve Beshear called the special session to remedy a $26 billion shortfall in state pension funds, a debt that has mounted for years. The Senate was expected to examine the bill Wednesday, and if no changes are made, it will travel to the House floor for debate. 

The plan under consideration will apply to new state, city and county employees. Beginning in September, retirement eligibility would be based on the “rule of 87” — an employee’s age plus years of service must equal at least 87 before he or she is eligible for pension benefits. A minimum retirement age of 57 would be established, ending the current policy that says employees can retire at any age after 27 years of service. Cost of living adjustments would be based on a 1.5 percent rate of inflation. Additionally, employees would have to contribute one percent of their income toward healthcare, and they’ll only be eligible for a single pension even if they return to work for the state after retirement — a practice commonly known as double dipping. 

“The idea is basically trying to mirror the retirement age to what’s happening in the private sector, and to reflect that life expectancy is a lot longer than it used to be,” said Rep. Scott Brinkman, R-Jefferson, just after a Senate reading of the proposed changes Monday.

Rep. Tom Burch, D-Jefferson, went further, saying the change is an attempt to make up for years of neglect. 

“The money that should have been put in the pension fund was used for other things … we were negligent in what we did, and there’s not much we can do about it right now. This pension bill will start fixing it, but we won’t fix it completely,” he said.


The expected boost to Louisville would come from a temporary reduction in the amount of money city and county governments would be required to pay into the County Employee Retirement System. Brinkman said the change is an effort to give cities a little more breathing room as fuel costs rise, tax receipts drop and times get tougher all around. The two-year designation is based on expectations that the economic slump will be over by then. 

Mayor Abramson’s note to the council came with a caveat, that “little in Frankfort can be taken for granted, but there appears to be a consensus on this issue.” Brinkman said he does not foresee anything other than a smooth path for the bill, and representatives plan to complete discussion and passage within five days, the required minimum length for a special session. 

Abramson also gave some recommendations for how he would like to see the $5 million spent. He suggested that about half-a-million dollars each be added for housing and family services, road improvements, playgrounds and parks, and Waterfront Park and Riverview Park developments. Another half-million would go toward facilities improvements and fuel, leaving $2 million in the bank. 

Councilman Kelly Downard, R-16 and budget committee vice chairman, said he agrees that some of the money should be saved. But the extra might not do much to defuse the tension in what has been an especially difficult budget session. The tight economy has led the council to be more aggressive in its scrutiny of funds. That stance was strengthened a week ago, when one of the marathon budget committee hearings revealed that the city had failed to spend nearly $20 million in affordable housing grants, some of which might already be lost to expiration dates. The council’s oversight committee will follow up on the matter next month.

With a tone of non-capitulation, Downard said Monday that the council accepted the mayor’s recommendations for what to do with the newfound pension money, but he didn’t expect the council would take them word-for-word.  “I think you’ll see that as a council we responded to his request … It’s very general, and we’re down in particulars right now,” he said.

Downard also said the council might suggest spending the extra money in ways that address another underlying problem. 

“The priorities on this budget were more on things instead of people, and we’re trying to put the focus back on the people,” he said, pointing to deep cuts in funding for community service agencies.

“I think what we’re finding out is we were not in the dire straights that we were told, and I think we’re going to reflect that to the community.”

The council will vote on its recommendations to the proposed budget Thursday, and the mayor’s office will take it from there.