Kentucky's new pension law looms as a "negative" for the state's credit rating, according to a credit rating agency's report.
Gov. Matt Bevin, who urged lawmakers to enact the law, said Monday he wasn't surprised by the Moody's report, saying it backs up his claims that considerably more work is needed to shore up public pensions.
Critics of the new law pounced on the report. They said it reinforces their arguments that the measure was flawed.
It passed during a special legislative session that the Republican governor convened last month. It cleared the GOP-dominated legislature over objections from Democrats, who offered alternatives.
Moody's said in a news release Monday that the new law is "credit negative" for the state. The assessment was given, it said, because the law "pushes pension costs into the future and raises the likelihood Kentucky will take responsibility for a greater share of the Kentucky Employees Retirement System's unfunded liabilities."
Kentucky has one of the country's worst-funded pension systems. The law is aimed at regional universities and dozens of community social services agencies that faced massive increases in pension costs. It allows affected agencies to decide next year whether to stay in the state's retirement system and face a big increase in contribution rates or agree to leave. It spared the agencies from the spike in pension costs by freezing rates at the much lower amounts for another year.
Moody's said the "credit negative" assessment doesn't signal a rating outlook change for Kentucky's credit rating.
Asked about the Moody's report, Bevin said he wasn't surprised by its conclusion. He said it reinforces his view that much more work is needed to resolve the state's pension woes.
"The Kentucky pension system is essentially bankrupt," he said during an appearance in Louisville. "It is a mess, and that's what I've been saying for four straight years. ... There is so much more work to be done."
The new law's critics said the Moody's determination underscored the flaws with the measure.
"The bill was designed to address an employer-funding issue without providing more funding," said Jim Carroll, president of Kentucky Government Retirees, an advocacy group for thousands of retirees and active employees. "So the inevitable result was simply a shift in liabilities from quasi-employers to the state budget."
As the new law was being debated, House Democrats raised the same concerns now expressed by Moody's, said House Minority Floor Leader Rocky Adkins, the chamber's top-ranking Democrat.
"Less than two weeks after the bill was signed into law, our predictions are coming true," Adkins said. "We offered a more fiscally responsible alternative that would have provided financial stability and security to the system and would have upheld our promise to career public service employees."
The alternative by House Democrats was defeated in committee.
It proposed a long-term freeze of retirement payments paid by affected agencies along with redirecting tens of millions in retiree health insurance payments to pension liabilities for five years. The retiree health insurance fund would have been paid back over time through higher annual payments to it. Adkins said the plan was actuarially sound and wouldn't affect retirees' health care benefits or premiums.
House Speaker David Osborne said the factors cited for the "credit negative" assessment would have been "far worse" under the Democratic plan. That proposal would have cost the state $3 billion, while "allowing private agencies to continue without paying their required obligations," he said.
The Moody's report shows there's no "easy way" out of the state's pension woes, the Republican speaker said.
"This pension crisis was not created overnight," he said. "It took years of inadequate funding, poor investment choices and unrealistic assumptions to bring our state to this point. I expect it will take almost as long to right this ship."
Associated Press Writer Dylan Lovan contributed to this report.