BRADENTON, Fla. - Kentucky lawmakers cut state agency and higher education budgets to contribute $1.28 billion toward its pensions, which are among the worst funded in the country.
The reductions of 9% for most state agencies and 4.5% for colleges and universities were ordered as lawmakers passed Kentucky's biennial budget before ending their annual session on Friday.
No cuts were made in K-12 education funding, and the budget does not raise taxes.
The biennial spending plan totals $36.65 billion for fiscal 2017 and $32.2 billion for 2018.
The general fund portion totals $10.64 billion and $10.88 billion, respectively.
Gov. Matt Bevin thanked lawmakers for reaching a bipartisan agreement on his pension funding plan.
"I am proud to say that we have invested more in our state pensions than ever before," he said. "This was the right and necessary thing to do."
Lawmakers ordered the savings from budget reductions to increase pension contributions, most of which have been underfunded for years.
At the same time, they rejected a proposal to issue $3.3 billion of pension obligation bonds to shore up the unfunded liabilities of the Kentucky Teachers' Retirement System, the state's largest pension fund.
Combined, KTRS and the Kentucky Retirement Systems have more than $30 billion in unfunded liabilities.
The budget places nearly $1 billion in state contributions over the next two years into KTRS, which is only 45% funded.
An additional $190 million would go to the Kentucky Retirement Systems, whose plans cover government employees.
Lawmakers also seeded a new pension reserve with $125 million.
The reserve, which will receive certain additional surplus funds in the years ahead, was proposed by Bevin, a Republican who was elected to office in December.
The two-year budget imposes "modest" spending cuts while ensuring sufficient funding for critical state services, Bevin said in a column published Monday.
He praised lawmakers for backing his plan to create the permanent pension fund dedicated to paying down pension obligations.
"We have a budget that is going to put Kentucky on solid financial footing," Bevin said. "It is conservative, focuses on important current priorities and also saves for the future.
"This budget sends a strong signal to the financial and business communities that we take our financial obligations seriously," he also said.
Bevin has until April 27 to approve the budget or use his veto authority.
Anything the governor disapproves cannot be overridden by lawmakers because they have no meeting days left to reconvene a veto session.
The final 2017 and 2018 budgets could be affected by a pending lawsuit challenging Bevin's right to unilaterally trim $41 million from college and university budgets in the current fiscal year as part of the his overall pension funding plan.
On April 11, Attorney General Andy Beshear filed the suit contending that budget cuts at nine public colleges and universities ordered by Bevin were illegal.
The 202-page complaint filed in Franklin County Circuit Court seeks a permanent injunction against Bevin, Finance and Administration Cabinet Secretary William Landrum, State Budget Director John Chilton, and State Treasurer Allison Ball.
A hearing in the case is scheduled for Thursday.
