Lexington, KY - For the past several years, I have written in this magazine about Lexington's growing problems with its Policemen's & Firefighters' Retirement Fund. I usually report about the pension in winter after actuarial reports have been released, and for this month's column I wanted to provide you with the latest information we have on Lexington's pension fund.
For those that haven't read my past pension articles, Lexington is the only city or county in Kentucky with its own pension fund. Over the years, other cities and counties have closed their pension funds and moved into the County Employee Retirement Fund (CERS) managed by the Commonwealth of Kentucky. Lexington's pension fund is mandated by state law, and changes to retiree benefits can only be made by the General Assembly.
As recently as 1997, Lexington's funding shortfall for the Policemen's & Firefighters' Retirement Fund stood at about $61 million. Fast forward to July 2011, and our pension shortfall has now ballooned to almost $258 million, and this is a $36 million increase since July 2010.
Our overall liability for pensions and retiree medical benefits is even higher. In 2009 and 2010, Lexington borrowed about $106 million to shore up its pension fund, and as of July 2011 we still owed about $100 million on these bonds. Additionally, Lexington's unfunded liability for retiree medical benefits stood at about $212 million in July 2010, and if past trends continue, this shortfall probably increased by an additional $15 million as of July 2011. When you add together the pension shortfall, bond balances, and what we owe for retiree medical benefits, Lexington's total liability as of July 2011 probably stood around $585 million, which is about $50 million more than the shortfall in July 2010.
It is extremely alarming that Lexington has borrowed and contributed $106 million to its Policemen's & Firefighters' Retirement Fund since 2008, while during the same time period our pension shortfall actually grew from $246 million to $258 million. It's as if we poured gasoline on the $106 million and set it on fire. It's all gone.
Last fall, I was appointed by Mayor Jim Gray to serve on a new task force to address Lexington's pension issues. Chaired by former Herald-Leader publisher Tim Kelly, the new Pension Fund Task Force is studying Lexington's pension problems, and hopefully will adopt recommendations sometime this year for restoring the Policemen's & Firefighters' Retirement Fund to financial stability.
We have already begun to see pressure on Lexington's city budgets from increased pension payments and retiree medical benefits. Late last year, Mayor Gray attempted to head off Lexington's spiraling medical insurance costs by increasing insurance premiums paid by employees and retirees. These were painful increases that many employees simply could not afford, and retirees were hit the hardest.
Even with aggressive changes by the General Assembly, I believe Lexington will experience both higher local taxes and serious reductions in city services as we begin to pay down our pension shortfalls. Every citizen in Lexington will be affected, and the Kentucky legislature must act quickly and aggressively to bring Lexington's runaway pension and retiree medical benefits under control. Further delay by the General Assembly will only make the problem more expensive to fix, as the Policemen's & Firefighters' Retirement Fund falls further and further behind. We cannot bury our head in the sand while Lexington slowly drifts toward insolvency.