Calling for bold solutions to the “extraordinary” problem of growing debt within Kentucky Teacher’s Retirement System Auditor Adam Edelen says all options should be on the table to deal with the liabilities— including bonding.
Edelen’s next audit will focus on the governance of the Kentucky Teacher’s Retirement System. A new accounting rule changes will mean that the fund’s debt — or unfunded liability — will nearly double to $23 billion in 2015.
The rule change, Edelen said, is essentially ending accounting tricks of hiding debts within the balance sheet — in simple terms — all debts without a plan to pay for the debt must be listed. Which is why Edelen says the Kentucky Teacher’s Retirement System debts will grow from a 54 percent funded $12 billion liability to more than $20 billion.
Edelen offered even more perspective for the problem by illustrating the state’s budget is $10 billion annually, and he said if something “bold” is not done other critical programs will be impacted.
“The next set of leaders in this state from the governor on down are going to have to spend a lot of time trying to figure this out because if we don’t do something bold, our pension obligations will literally crowd out our ability to educate kids or build roads or do many of the other things that state government ought to be doing,” Edelen said.
One solution Gary Harbin, the executive secretary for the Kentucky Teacher’s Retirement System, laid out in November of 2013 was to borrow, or sell bonds, to cover some of the debt.
The solution is something Edelen said would be hard to swallow, but must be considered by lawmakers.
“I think all of this has to be on the table. Do I like the idea of borrowing money to shore up a debt that we didn’t pay? I don’t like the idea a bit but there are no good solutions to this problem,” Edelen said. “Let me put it into perspective — if expanded gaming generated half a billion dollars annually, that would need to be totally consumed by the teachers’ retirement system just to get us back to solvency every year.”
There are 60,000 Kentuckians currently participating in teachers retirement system, which will be out of money by 2036 if nothing is done.
“The problems we’ve got here are extraordinary and I think anybody who is philosophically or ideologically opposed to a solution needs to get over themselves because what we’ve got to focus on is the least of many bad options,” Edelen said.
In the same 2013 meeting Harbin floated the idea of growing timber along interstate highways to stem the growing debts.
“That’s the first I’ve heard of producing hard woods to fund hard problems,” Edelen said.
Edlen said he is “inherently optimistic” and said the problems facing the state will need a level of “creativity” to solve.
“Big crises spur a certain kind of big leadership and creativity and that’s what we’ve got to harness in Kentucky because there’s no way to small ball our way out of this mess. We’re going to have to be bigger than the problem and that’s going to require considering things that we’ve never previously considered,” Edelen said.