The so-called re-worked proposal by the KY Senate to fix unfunded liability is still needlessly cutting benefits from teachers, state workers and threatens fire, EMS and other first responders. There is a method, just like refinancing your home mortgage, that is not being considered; using consumption based revenue.
All of us who own homes understand how refinancing your home mortgage works. You go to your mortgage lending agency, and you restructure your mortgage to get both a lower payment and even a lower interest rate, for a longer term period. The key is making sure you have verifiable income to support the new payments.
We can do the same with the pension underfunded liability, without cutting pension benefits or switching to more speculative and riskier 401K investment strategies.
Here is how:
- We need to go after and get expanded gambling and medical marijuana revenues. These are “Consumption” revenues. Which means they do not raise taxes on income or property. None. Zero. But even modest estimates project the revenue from these could be at least $300 million per year, (and many projections have that at over $500 million per year) with a modest 2% year over year growth. Every entrepreneur knows you do not leave money on the table. Yet this administration is doing just that.
- Once we have those new revenue sources in place, the government can issue a Revenue Bond against those. That is a financial vehicle which is issued by the government and is secured by the incoming revenue from those listed in item 1 above.
- Using that Revenue Bond we can immediately fund over 40% of the unfunded pension with a full payback to the bond investors over a 30 year period with a 2% yield. (And may even be as high as 70% of the unfunded liability if the revenues are at $500 Million with 2% growth and the UAAL is less than the current projected of $40 billion.)
Again this is using new sources of revenue, and is very much like refinancing your home mortgage. Without raising taxes on income or property.
So, if you want to do the math, here it is. $300 Million with 2% growth over 30 years results in almost $13 Billion in revenue against an UAAL of about $40 billion. The $13 billion is what the Revenue Bond would be issued for, which immediately brings the unfunded liability of the pension to being over 40% totally funded when you add it to the existing Funded Liability.
Why are we not even considering this as an option?
We can do this if we have the right leadership in place.