Fifty-One Cents on the Dollar
In January, at a nine a.m. meeting no reporter attended, Lexington's police and fire pension board set the city's contribution at 51.24 percent of payroll — about fifty-two and a half million dollars in the budget council just adopted. Kay and Pete explain the fund in plain English: the three hundred eighty-six million dollar hole, the retirees losing ground to capped cost-of-living raises, the push to sweeten benefits anyway, and why the whole fight lands in Frankfort in twenty twenty-seven.
Transcript
KayNine o'clock on a Wednesday morning in January. A conference room, a voice vote, no reporters in the room. And with that, Lexington committed itself to one of the biggest line items in the budget the council just passed.
PeteHere's the line in one sentence. For every dollar Lexington pays a police officer or firefighter in salary this year, it pays another fifty-one cents into their pension fund.
KayFifty-one point two-four cents, to be exact. Call it fifty-two and a half million dollars. [pause] And the last time a reporter took a hard look at this fund was twenty eighteen.
KayFrom The Lexington Times, this is Town Branch — the stories running under Lexington. I'm Kay.
PeteAnd I'm Pete. Okay. Pensions make people's eyes glaze, so let's do this in plain English. Lexington is the only city in Kentucky that still runs its own closed police and fire pension fund. Everyone else folded into the state system.
KayAnd a pension fund is really just two numbers. What it has, and what it owes. Lexington's fund has a little over a billion dollars. It owes, in benefits already promised, about one point four billion. Divide one by the other and you get the funded ratio — seventy-two and a half percent.
PeteWhich leaves a gap of three hundred eighty-six million dollars and change. That's the unfunded liability — the hole.
KayNow break that fifty-one cents apart, because this is the part nobody says out loud. Only about sixteen cents pays for the benefits today's officers and firefighters are earning right now. Around thirty-five cents — two-thirds of the whole contribution — is debt service on promises made decades ago.
PeteIt's a mortgage. The city is eighteen years from paying off a mortgage on its own past.
PeteSo is the fund in trouble? Because I can hear listeners assuming the worst.
KayHonestly, no — and getting this right matters. The fund was about seventy-two percent funded in twenty seventeen, and it's seventy-two and a half now. The ratio has barely moved in eight years, while the dollar hole grew almost fifty percent. That sounds damning, but part of the growth is the fund being more honest with itself — it lowered its assumed investment return from eight percent to seven, which makes the same promises look more expensive on paper.
PeteAnd compare it to the neighbors. The state's hazardous-duty plan — where every other Kentucky city's police and fire sit — is fifty-seven percent funded. Lexington pays a higher rate than those cities precisely because it put itself on an aggressive eighteen-year payoff schedule instead of stretching the debt out forever.
KayThe actuary's own word for the funding policy was solid. So the story here isn't insolvency. The story is who's been carrying the cost of the fix — and who decides what happens next, in rooms nobody attends.
KayStart with who carried it. In twenty thirteen, the state legislature cut retirees' cost-of-living raises to capped tiers — one percent, one and a half, or two percent a year, depending on the retiree. Those caps stay until the fund hits eighty-five percent funded. It has never gotten there.
PeteTwo retirees sued over that, and in twenty sixteen a federal appeals court said the cuts were legal — no vested right to the old formula. The caps stood.
KayAnd at that January meeting, during public comment, a retiree representative stood up and did the arithmetic out loud against inflation, which was then two point seven percent. Two hundred one retirees get a two percent raise — every one of them lost ground. Eight hundred eighty get one and a half. Two hundred forty-nine get one percent. About thirteen hundred people, all going backward. His words: our retirees are losing money every single month.
PeteAnd since that meeting, inflation went up, not down. The May number was four point two percent — a three-year high. Those caps bite harder every month.
PeteWhich brings us to the strange part. While retirees lose ground, there's a serious push to make the benefits more generous.
KayA board subcommittee has been studying a menu. Let officers retire at twenty years instead of twenty-five. Raise the pension multiplier. Restore bigger cost-of-living raises. Add a deferred-retirement program on the fire side.
PeteAnd the reason isn't greed — it's recruiting. At one meeting, the police side said it plainly: we're a hundred twenty-nine sworn officers short. A twenty-year pension is the carrot. New York restored a twenty-year police retirement last year for exactly the same reason.
KayBut every item on that menu has a price. A rule of thumb from the subcommittee: each percentage point of cost-of-living raise costs about a million dollars a year. A one-time thirteenth check for retirees — seven and a half million.
PeteAnd the city finance side is openly skeptical. When someone asked what would make him more comfortable with the numbers, his answer was two words: being trusted. He pointed out the hole is a hundred twenty million dollars deeper than when the city started paying extra, and warned — if you keep adding to the ocean, you'll never pay it off.
KayThe other side's answer, from a different meeting, deserves airtime too: our funding ratio is great, contrary to what anybody would believe. Having an unfunded liability does not make you a bad person.
KaySo who actually decides? Not the board, and not the city. Every one of these benefits is written into state law. The board can study and recommend, but only the General Assembly in Frankfort can change a multiplier, a retirement age, or a cost-of-living formula.
PeteThere's no bill this year. The target is the twenty twenty-seven session. Which means the next eighteen months of subcommittee meetings — the nine a.m., no-reporters kind — are where the real decisions take shape.
KayWhat should happen is pretty simple. Price every scenario in the open. Pair any sweetener with a funding source. And somebody — us, for starters — should be sitting in that room.
PeteFifty-two and a half million dollars a year, and the most contested question in city government is happening at a meeting most people don't know exists.
PeteThat's Town Branch. The full commentary, the meeting recordings, and the court opinion are all linked in the show notes — with timestamps.
KayTown Branch is produced by The Lexington Times. Our voices are synthetic, and our scripts are drafted with AI from Lexington Times reporting and the public record, then fact-checked before air. Find every source at feeds dot lexington k y dot news slash podcast. [warm] We'll see you down the creek.
Town Branch is produced by The Lexington Times. The hosts are synthetic voices (ElevenLabs); episode scripts are drafted with Claude (Anthropic) from Lexington Times reporting and the public record, then fact-checked by the newsroom before publication. Every factual claim links to a source in the episode notes.