Plans to raise $3.3 billion in a pension obligation bond sale for the beleagueredKentucky Teachers’ Retirement System failed to pass through thestate’s legislature this week.

In response, the KTRS Board of Trustees may request a speciallegislative session to reconsider the proposal.

Gary Harbin, executive secretary of the system’s board oftrustees, said $14 billion in KTRS’s unfunded liabilities will growto $21.6 billion by July without a new funding plan.

“We’re going to be looking at asking for a special session,” hetold CN2 News in Frankfort, Kentucky.

The state legislature’s next regular session won’t begin untilnext January.

Harbin told the news station that he hopes the state willreconsider the POB before next session, citing fears that waitingthat long could mean issuing a bond after the Federal Reserveraises interest rates, which would dramatically increase the costof issuing the new debt.

“The sooner this is solved (the) better for members (of KTRS)and better for taxpayers,” said Harbin. “Every time the Fed raisesinterest rates by 25 basis points, the cost of utilizing this plangoes up by $166 million over 30 years.”

If interest rates were to go up by 1 percent between now and anew bond issuance next year, Kentucky taxpayers would be on thehook for an additional $600 million in costs over 30 years, saidHarbin.

Legislation directing $3.3 billion in newbonds passed the House in February, but the law was killed in theSenate, by a convincing 28-8 margin.

Negotiations to reconcile differences between leaders in the twochambers failed at the 11^th hour.

The $3.3 billion bond sale would be the largest in Kentucky’shistory. Senate Republicans insisted on further study of the issue,and offered an immediate infusion of $50 million, which wasrejected by House Democrats, according to myCN2.com.

Doing so was “irresponsible,” according to Senate presidentRobert Stivers, a Republican.

“There is no crisis that requires $3.3 billion in new debt; thefund can make payments for the next 21 years,” said Stivers in astatement.

Proponents of POBs argue they are a relatively safe bet forstate taxpayers, given today’s historically low interest rates.

Cash raised from the bond auction would be infused in KTRS’sinvestment portfolio and return a higher rate than the cost toservice the debt, so long as the pension returns its historicalaverage over the term of the bond, argue proponents.