The Looming Debt Crisis, In Plain English

This page answers a question almost no Lexington resident gets a clear answer to: how much does the city actually owe its workers and retirees, and is it on track to pay it?

Lexington's regular budget looks fine year to year, but stacked underneath are about $244 million of unpaid pension promises, a retiree health-benefit fund that's barely in surplus and sensitive to a single rate assumption, and $570 million in outstanding bonds — together making the next 25 years of city spending a lot less flexible than the top-line numbers suggest.

When a Lexington police officer, firefighter, or city employee retires after a career of service, they receive monthly payments for the rest of their life. That's their pension. The fund that pays those checks isn't run by Lexington directly — it's run by the state, through CERScersCounty Employees Retirement System — the state-run pension Lexington's general employees and most local-government workers in Kentucky pay into and draw from. Split into Non-Hazardous (general workers) and Hazardous (police, fire, corrections)., which pools money from every county and city government in Kentucky.

Every two weeks, Lexington sends a check to CERS based on a percentage of its payroll (currently 17.43% for regular employees, 34.72% for police and fire). CERS invests that money and uses it to pay benefits when the worker retires.

Here's where it gets harder. When governments promise pensions, the money to pay them is supposed to be set aside over each worker's career. But for a long stretch — through the 1990s and 2000s — Kentucky did not put away enough. Investment returns came in below assumptions. The actuarial math drifted. The state pension fund ended up under-funded by a lot of money.

Federal accounting rules (GASB 68gasb 68The accounting rule that requires governments to report their share of a multi-employer pension's unfunded liability on their own balance sheet. This is why Lexington's $244M pension liability shows up in the ACFR even though the state runs the plan.) require every government that participates in a multi-employer pension to report its share of that shortfall on its own balance sheet. Lexington's share, as of mid-2024, was $244,034,569. That's a real legal obligation, just like a mortgage. It comes due in pieces, year after year, for the next 24 years.

Kentucky put the pension on a closed amortization scheduleamortization periodThe number of years a government has committed to paying down its pension shortfall. Kentucky's CERS plan is scheduled to be fully funded by June 30, 2049 — 24 years from 2025. in 2019: if every assumption holds, the shortfall is supposed to reach zero on June 30, 2049. Lexington has paid the full required contribution in every recent year (and more, in some).

But "the full required contribution" is a substantial fraction of what the city pays its workers — usually 20–24% of payroll on top of actual wages. That money goes to the pension fund, not to filling new positions or expanding services. As Lexington's payroll has grown from $75 million to $138 million over the past decade, the dollar amount of the pension bill has roughly doubled, from $14 million to $28 million per year.

OPEBopebOther Postemployment Benefits — government-paid retiree benefits *other than* a pension check. For LFUCG this means retiree health insurance. stands for "Other Postemployment Benefits." For Lexington, that means retiree health insurance — the commitment to keep paying medical premiums for city retirees after they stop working.

On paper, OPEB looks healthy. The total promised value is about $152 million, the fund's current market value is $155 million, so the balance shows a surplus of about $2.7 million.

But that number depends on a single assumption: a discount ratediscount rateThe interest rate used to estimate today's value of future pension or retiree-health payments. Higher rate = liability looks smaller; lower rate = liability looks bigger. A 1% move in the rate can shift Lexington's retiree-health balance by $15M+. of about 6%, which is how much the actuary assumes the OPEB fund's investments will earn going forward. If that rate falls just one percentage point — which would be normal over a 30-year horizon — the math flips: the surplus disappears and a $14.8 million shortfall takes its place.

$14.8 million is bigger than Lexington's annual capital budget. It would appear from a footnote assumption changing, not from anything the city did wrong.

The list is shorter than you'd expect.

• The pension contribution rate (17.43% non-haz, 34.72% haz) is set by the Kentucky General Assembly through KRS §78.635. Lexington doesn't get to change it.
• The discount rate on pension and OPEB liabilities is set by the KPPA Board of Trustees, not by the city.
• The 2049 amortization deadline was set in 2019 state legislation.

What the city does control is its payroll. Every additional employee, every wage increase, every reclassification carries with it a 17–35% surcharge that goes straight to Frankfort. This is why decisions about hiring, contracting out, and salary policy carry much larger consequences than the headline numbers suggest — the leverage on pension cost is built in.

Lexington has about $570 million in outstanding bonds (long-term debt the city issued to fund capital projects). That sounds like a lot, but the city's bond rating is solid (Aa2 from Moody's, AA from S&P) and FY26 debt service ($73 million) is well within the budget.

What's notable is that three of the city's bond series — the pension obligation bondspension obligation bondA general obligation bond the city issues specifically to put extra money into the pension fund — borrowing on the public credit to fill the actuarial hole. Lexington has used these in 2009B, 2017B, and 2020B. from 2009, 2017, and 2020 — were issued specifically to put extra money into the pension fund. In other words, Lexington has already gone to the public bond market on three separate occasions and said, in effect, "the pension shortfall is so durable that we need to borrow against the city's future to make a dent in it."

That's not a scandal. It's a sometimes-reasonable financial strategy. But it does tell you something about the scale of the underlying obligation: closing it through operating revenue alone wasn't working fast enough.

This page covers the city's direct obligations to current and former employees. It does not yet include:

• The Lexington Center Corporation's $221M convention-center bonds (an instrumentality of the city, technically separate but backed by transient room tax and city lease payments).
• The Sanitary Sewer Revenue Bonds ($56M outstanding), repaid from sewer fees rather than general revenue.
• Kentucky Infrastructure Authority loans ($125M+) backing wastewater projects under the EPA Consent Decree.
• Landfill closure and postclosure care costs ($23M reserve).

Each of these is real money the city is on the hook for in some form, and each will get its own treatment in future rounds.

Three things are worth knowing as a voter and as a taxpayer:

1. Mayoral candidates who promise "no new taxes" should be asked about pensions. The bill grows automatically with payroll. If they plan to add positions, expand services, or raise wages — all reasonable things — the pension cost rises with it, and that money has to come from somewhere.
2. OPEB sensitivity is a real risk worth tracking. The reassuring headline on retiree health benefits rests on a footnote. Watch for changes in the KPPA discount rate; they matter.
3. The 2049 finish line is real but conditional. "If every assumption holds" is an actuarial phrase that does a lot of work. Investment returns, mortality assumptions, healthcare cost trends — any of them can lengthen the runway.

Every figure on this page is from a publicly available document. You do not have to take our word for anything.

• LFUCG FY2025 Annual Comprehensive Financial Report (ACFR) — see Note 3.G (pp. 103-115) for pension and OPEB, Note 3.D (pp. 74-82) for long-term debt, and the RSI schedules on pp. 121-131 for the 10-year history.
• KPPA 2025 CERS Actuarial Valuation — the executive summary on pp. 1-3 has the system-wide funded ratios and 30-year projections.
• /methodology#pensions — our exact data extraction methodology, version-controlled in GitHub.

This is a transparency observation, not a finding of impropriety. Lexington's pension situation is the same situation faced by nearly every Kentucky county government — and most American local governments. The point of putting it on a dashboard is that it should not require a financial-analysis background to know it's there.