Herald-Leader Editorial2013 General Assembly

What happened to Ky. tax reform?

time to talk taxes if legislature fails to fix huge pension liability

March 10, 2013 

We hope we're wrong, but this session seems likely to end with a stalemate over how to honor retirement promises to Kentucky's public employees.

If that happens, Gov. Steve Beshear should introduce pension reform to tax reform.

The logic of this pairing is inescapable. Yet no one is doing much match-making, at least not that you'd notice.

Last year the governor put Lt. Gov. Jerry Abramson in charge of a Blue Ribbon Commission on Tax Reform, which presented Beshear with a plan for raising an extra $659 million a year, boosting the $9 billion General Fund by seven percent.

But not since his State of the Commonwealth speech have we heard Beshear talk up the advantages of adjusting the outdated tax code to a modern economy.

The pension fund has an unfunded liability of $33 billion, one of the nation's worst and a drag on Kentucky's credit rating. The longer the legislature puts off filling this hole, the deeper it gets because money that's not there can't earn a return.

Making up that underfunding is the essential piece of pension reform. We also should remember that one of the reasons lawmakers and governors diverted hundreds of millions of dollars that should have gone into pensions to other areas of the budget was because it was the only way to pay for what they saw as legitimate needs.

Senate Republicans want to trim retirement benefits for future employees now but put off the funding piece. This way they could whack the rest of government in future budgets to free up money for pensions.

This approach would cheat Kentucky's young by further starving education, social services and infrastructure that makes a state competitive.

Kentucky has cut $1.6 billion in state spending in recent years. Without tax reform we'll get more false economies like the planned cut-off of child care assistance to 23,000 children to fill a shortfall in the social services budget. The savings are far outweighed by the long-term costs of parents quitting work to care for children or leaving them in unsafe conditions.

House Democrats are proposing expanded gambling to fund the pension fix. Give them credit for at least proposing a funding source, but their plan would divert future growth in lottery revenue from education, where it's desperately needed, into pensions where it's also desperately needed. Desperate need is a recurring theme.

It's always been assumed Beshear would tackle tax reform in a special session, if for no other reason than revenue measures in regular odd-year sessions require a super-majority, making them harder to pass.

The blue-ribbon commission's plan is not ideal, but it's a starting point for an overdue debate on tax reform.

If legislative leaders and Beshear can salvage pension reform in this session, more power to them. But if a special session is required, pension reform should be linked with tax reform.

House Democrats have shown little more enthusiasm for tax reform than Senate Republicans, which means Beshear has a major sales job, no matter what happens with pensions.

If he's serious about tax reform, he should start soon; it's his best and probably last shot at going down as more than a caretaker governor.

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