House Democrats mulling cigarette tax increase to fund pension system

bmusgrave@herald-leader.comFebruary 12, 2013 

FRANKFORT — House Speaker Greg Stumbo said Tuesday that a 40-cent increase in the tax on a pack of cigarettes is one of many options the Democratic House is considering to finance the state's ailing pension fund.

The increase would bring state cigarette taxes to $1 a pack, which would remain lower than in most neighboring states, Stumbo said. Raising taxes on cigarettes and other tobacco products would generate the $100 million in General Fund dollars needed by July 1, 2014, to fully fund the pension system, he said.

Stumbo, D-Prestonsburg, declined to name other options that House Democrats are considering, but he said he hopes to have those options ready for the Democratic caucus for a possible vote during a meeting Wednesday.

"It's going to be part of the general discussion on where the members want to go," Stumbo said of the cigarette tax.

The House has not yet taken any action on proposals to overhaul the state's pension system for most public workers.

Last week, the Senate passed its version of a pension bill that included the recommendations of a task force convened to look at the state's ailing pension system this summer. The pension system has roughly half the money it needs to pay all current and future retirees.

Senate Bill 2 would strike cost-of-living increases for current retirees and move new employees to a hybrid 401(k)-style plan that offers a guaranteed rate of return on investments.

A group representing unions and retirees blasted the Senate on Monday for voting on the bill before seeing an actuarial analysis by the Kentucky State Retirement System. An analysis showed that the hybrid plan might cost more than continuing the existing defined-benefit pension system.

Democrats also have expressed concerns that SB 2 does not say how the state should find additional money to fully fund the pension system.

The system needs an additional $300 million in new funding beginning next fiscal year, but only about $100 million of that is for state employees whose salaries are paid for with state General Fund dollars.

Senate Republicans have said a decision on where the additional money should come from can be made in 2014, when the legislature approves a two-year budget.

Senate President Robert Stivers, R-Manchester, said Tuesday that he thinks the funding could come from natural growth in state revenue as the economy picks up.

He said House Democrats would need support from several Republicans to reach the 60 votes needed to approve a cigarette tax increase in the current legislative session. Tax issues in short, or 30-day, legislative sessions require three-fifths of a chamber's vote to pass.

Stivers also said a cigarette tax hike is not a reliable funding source. When more smokers quit because of the tax increase, revenue will decline, he said.

Beth Musgrave: (502) 875-3793. Twitter: @BGPolitics. Blog: bluegrasspolitics.bloginky.com

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