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Monday, March 19, 2018

Mayors Talk Pensions and More at NKY Chamber Event

Northern Kentucky mayors speak at Chamber panel: Chris Reinersman, Eric Haas, Diane Whelan
Mayors from Independence, Florence and Fort Thomas shared their thoughts on a wide range of topics at a government forum hosted by the Northern Kentucky Chamber of Commerce.

About 60 people attended the lunch and mayor’s panel at The Metropolitan Club in Covington last month to hear what local mayors thought about the governor’s budget and the impact of decisions in Frankfort on local communities.

Fort Thomas Mayor Eric Haas was joined by Mayor Chris Reinersman of Independence and Mayor Diane Whalen of Florence. Kristin Baldwin, vice president of public affairs and communications for the Chamber, served as moderator.

State pension reform impact on city budgets

Pension reform sparked the first and most in-depth discussion. Baldwin noted that the current bill, Senate Bill 1, does not address the County Employee Retirement System (CERS), the issue that most directly affects cities and counties.

"We’ve heard from our legislators that there is another companion bill that is probably going to go with this one that hopefully will address all of your concerns [about CERS]," she said.

Initial estimates of the financial impact of SB1 on city and county budgets is alarming, the mayors said, but they are waiting for more details on a possible phase-in plan or other opportunities designed to help municipalities meet the additional costs.

"The impact [of SB1] on my budget is a fifty percent increase in employer contribution rates," said Reinersman. "For me that’s about an additional $365,000."

RELATED: NKY Cities Staring Down Big Pension Increase (The River City News)

To put it into perspective, he said, Independence will purchase new radios and emergency communication equipment this year that will cost roughly $350,000. In preparation, money has been set aside in the budget for several years. The pension bill would add slightly more than that to the budget with no time to prepare.

Haas said in Fort Thomas city officials have not paid much attention to speculations about the cost of the pension bill, because the city budget could not begin to address those costs.

"I heard something like three quarters of a million dollars. It was astronomical, so why even bother going through this because we knew there will need to be some changes or at least a phase-in period," he added.

"Thirty-five years ago, those of us in business switched from a defined benefit plan to a defined contribution plan because we knew it was not sustainable. Government tends to be behind the curve, kicking the can down the road as it gets worse and worse."

Something has to be done, he said, and he is hopeful. "I don’t want to lose any good employees in the city of Fort Thomas…I think the people who have been in the system a long time will probably be alright…and we want to encourage good people to come into the system. We want to have a good plan, but there’s no reason why a defined contribution plan can’t be a good plan."

Florence could face a one-million-dollar cost increase if nothing changes in the bill. "It’s something we can manage, but how many years we can manage that is another question," said Whalen. "Many cities and counties across Kentucky can’t manage that, and it’s going to cause severe changes to either their budgeting or their ability to exist."

Impact felt by all

Whalen noted the concerns of existing employees, especially first responders. "The police officers, the firefighters believe, honestly, they were promised something when they came to work. They would be able to retire…in 20 years with full pension benefit." They have based their financial planning and their futures on this promise, she said.

She agreed with the others that doing nothing is not an option. The bill needs further examination and analysis to figure out how to make the package work for the state, the cities and everyone involved, she said.

Reinersman said city and county governments are not the only entities that face additional budgetary concerns with the pension reform bill. He noted that, unlike municipalities, the Independence Fire District has limited capacity to increase revenue. Cities struggling to meet new employer contribution obligations could explore tax increases or reductions in services. For the Fire District, these remedies are not an option, he said.

The Independence mayor also serves on the Northern Kentucky Health Department Board of Directors. Changes put forth by the pension bill could reduce the money the state has made available to the health department to cover a portion of its employer contribution. Losing that support could mean a potential 35 percent reduction of workforce, according to the Kentucky Health Departments Association.

"The Health Department is on the front lines of the opioid epidemic, plus the essential services they provide...That means fewer restaurant inspections, cuts to the various efforts on opioid treatment and a myriad of other things they do. This could have a ripple effect through everything. We have to find a solution," he said.

 Finding fairness for road dollars

Next on the list of topics was transportation infrastructure and the road funding formula in particular. Baldwin noted that the formula used to divide revenue raised for roads has not changed since 1948.

At the time the formula was developed, rural roads were the most traveled. Today, two-thirds of the state’s population is urban. In fact, she said, urban areas increased population by 148 percent since 1948 while rural areas have only increased by 12 percent.

The road formula still provides 85 percent of revenue to rural roads and only 15 percent to urban areas.

Whelan responded that changes in the road formula could cause conflict between cities and counties. Representatives in the legislature from urban areas say they would support a gas tax but only if the road formula is examined to find a fair and equitable solution.

Looking for more revenue

The discussion led into exploration of other revenue streams. Baldwin said the Chamber is advocating a one-dollar-per-pack increase to the cigarette tax as one way to raise revenue. Not only would the increase raise badly needed funds, data shows that a dollar jump in cost per pack is a price point that would have a significant impact on health.

"Studies show that it would keep 23,000 youths from becoming adult smokers and potentially 29,000 adults would stop smoking." This would also save health care costs to the tune of more than six million dollars a year, she said.

"Nobody likes a new tax but this one is hard to argue with," said Reinersman. "Those numbers are so compelling…Nationally, the range is from 30 cents a pack to $4.35 a pack."

At 60 cents per pack, he said, Kentucky has the fifth lowest tax in the country but also the state has one of the highest smoking related death rates. While the proposed increase is a significant jump, it still puts the state below the national average.

Haas said, "I personally don’t have a problem with raising the cigarette tax but when you talk about any taxes, though, a review of the entire tax structure is really what needs to happen in Kentucky."

Cities on the front lines 

The conversation moved to other types of taxes and to tax reform in general.

"When they start making changes to the tax code in Frankfort, it’s important to us that they don’t increase our burden without allowing us the opportunity to find also a way to do revenue reform within local government," said Whelan.

"If the pension issue becomes one that is going to break the backs of some of the cities and counties, then we need an opportunity to at least go to our constituents and talk to them about what our next step could be. We want to find ways to keep taxes low, encourage business and provide the services we are expected to provide," she said.

The mayors agreed that accountability is greatest at the local level, and they expect to hear from constituents on the pension issue and a variety of issues in the state and locally.

Said Whalen, "You can walk in our door and see the salt trucks, the police cars, the fire trucks. You can see the road improvements and the sewer system. You can see all the things that we provide and that’s being done with the revenue we generate through taxes. You have a much more direct line to your money, and you can see what is being done with it."

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