Kentucky's pension reform law struck down by judge as unconstitutional

Tom Loftus | Courier Journal

Show Caption Hide Caption Andy Beshear on struck-down pension bill Kentucky Attorney General Andy Beshear and Kentucky Education Association President Stephanie Winkler spoke to the media.

FRANKFORT — A Franklin Circuit Court judge struck down Kentucky’s pension reform law on Wednesday, saying the rapid manner in which it was passed was unconstitutional.

Judge Phillip Shepherd said the process, which took six hours after the pension language was substituted into an unrelated sewer bill on March 29, violated safeguards to ensure "legislators and the public" can know the content of bills under consideration.

Democrats and advocates for teachers and public employees hailed the decision.

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Attorney General Andy Beshear, who argued against the law, said at a brief press conference that the ruling is a win for teachers, social workers, police, firefighters and other public employees.

"These public servants have been disrespected," he said. "These public servants have been called names ... and they were betrayed by their government that acted behind closed doors and in the dark of night."

The high-profile case pitted Beshear against Republican Gov. Matt Bevin – who says the law is legal and is needed to help address Kentucky’s multibillion-dollar pension crisis. Beshear, a Democrat, argued that the law illegally cuts pension benefits and that the expedited process violated the state Constitution.

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Bevin spokeswoman Elizabeth Kuhn said the ruling by Shepherd — whom Bevin has called an "incompetent hack" — was expected and would be appealed.

"The consequences of this ruling are tremendous for Kentucky because hundreds, if not thousands, of bills have previously been passed by the General Assembly using the exact same process," she said.

Bevin had tried unsuccessfully to remove Shepherd from the case, but Supreme Court Chief Justice John D. Minton Jr. refused the request.

House Speaker Pro Tem David Osborne, R-Prospect, said he was disappointed the ruling strikes down reforms that a would improve the solvency of Kentucky's troubled pension plans. And Osborne echoed the point made by Bevin's spokeswoman.

If upheld on appeal, Osborne said the ruling could jeopardize "decades of enacted revisions to Kentucky statutes that have followed the same process as Senate Bill 151" including laws passed to protect pension benefits.

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Shepherd's 34-page order accepted Beshear's argument that the bill did not get three readings in each chamber as required by the Kentucky Constitution. He also said that the legislation appropriated state funds and — as an appropriations bill — required a majority of all 100 House members and 38 senators to pass.

Legislative leaders have contended the bill does not appropriate state funds, and as such required only a majority of members who voted to have voted for it — so long as at least two-fifths of each chamber's members voted yes.

The bill passed the Senate 22-15 but passed in the House 49-46. Shepherd ruled that was two votes short.

Striking down the law on these two constitutional grounds, Shepherd's order did not decide whether the new law's modest changes in benefits violate contractual rights of public employees or retirees.

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Senate Bill 151 — originally sanitary sewer legislation — was swapped out with 291 pages of pension reform wording late during the legislative session. The bill zipped through the House and Senate in six hours over the howls of teachers and public employees who crowded the Capitol.

The normal process requires at least five days to pass a bill for it to get three readings in each chamber. In this case, SB 151 got its first five readings when it was still a sewer bill.

Beshear and other plaintiffs said that neither the public — nor most legislators — had time to read the bill before final passage and that the rapid process was unconstitutional. The plaintiffs also said some benefit changes in the bill violated an "inviolable contract" in state law that absolutely protects the pension benefits granted a public employee at the time the employee was first hired.

But Steve Pitt, the general counsel for Bevin's office, said the law makes no benefit changes that harm any current teachers or retirees, and he said the process used to pass it was neither illegal nor unusual.

Pitt argued that the General Assembly has frequently used the speedy process and that many important state laws will surely be challenged if the court struck down the pension law on this basis.

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Kuhn, Bevin's spokewoman, repeated that point in her statement late Wednesday. "For example, cities and counties will go bankrupt without pension phase-in funding, and programs to combat the drug epidemic will be negatively impacted."

But Shepherd said in his ruling that other laws were not at issue in this case and that in this case the legislature had clearly used a rapid process that clearly violated the Kentucky Constitution's mandate that the process be deliberate enough so that the public can follow the bill and react.

The pension law was part of a compromise that Republican majorities in the House and Senate agreed to in the closing days of the session on the three priorities: pension reform, tax reform and the 2018-20 state budget.

The final pension bill was watered down from earlier versions that proposed significant benefit cuts. For instance, the final version did not include reducing annual cost-of-living adjustment for retirement benefits of teachers.

It changes how current teachers can use accumulated sick days to determine their pension benefits. And it requires state and local government employees who started between 2003 and 2008 to begin paying 1 percent of their pay for retiree health benefits.

Read more about Kentucky's pension crisis here

The most significant part of the new bill is a requirement that new teachers starting next year be placed in a new kind of pension plan — a “hybrid cash balance” plan rather than the current traditional pension. Opponents say this is a diminished benefit that will damage public education by making teaching a much less attractive occupation.

Proponents of the bill say new teachers will still get a comparable benefit with less risk to the state. Pitt has said provisions in the bill that require improved state funding of Kentucky's pension plans are vital to financial recovery of Kentucky's public pension plans, which he said are in the worst financial condition of any state.

Officially, the eight state retirement plans reported that as of June 30, 2017, they carried $43.8 billion in unfunded liabilities, though Bevin has said the problem is worse than that.

Tom Loftus: tloftus@courierjournal.com; Twitter: @TomLoftus_CJ. Support strong local journalism by subscribing today: www.courier-journal.com/toml.