Kentucky politicians scramble to find last-minute fix to state's pension crisis

bmusgrave@herald-leader.comMarch 25, 2013 

FRANKFORT — House and Senate leaders were scrambling Monday night to come to an agreement on a fix for Kentucky's ailing pension system after spending most of the day trading proposals.

Monday was the 29th day of the 30-day legislative session.

House leaders floated a pension proposal late Monday that they said had the approval of the House Democratic caucus and Gov. Steve Beshear. House Speaker Greg Stumbo, D-Prestonsburg, said the funding plan included a 1-cent decrease in the gasoline tax, which would be offset by closing a tax credit for trade-ins on used cars. Stumbo said that the total amount generated would be about $110 million. More details about the funding plan were not immediately available late Monday.

Stumbo said Beshear was going to talk to Senate Republicans about the counter proposal.

As of 10 p.m. Monday, it was not clear if Senate Republicans would accept the House's latest proposal.

Stumbo also said that House leaders would like to move the 30th day of the legislative session, which was supposed to take place on Tuesday, to Wednesday to give the legislature more time to work on a possible pension fix and avoid a special legislative session.

But Senate leaders said late Monday night that they planned to use Tuesday as the final day of the legislative session.

A special legislative session would cost taxpayers upwards of $60,000 a day.

The House's proposal came after House Democrats voted down an 11th-hour pension fix proposed by Beshear that included cuts to gasoline taxes that would be offset by changes in the state income tax codes that would generate about $110 million for the pension system in the next fiscal year.

Before the closed-door vote, Beshear spent more than two hours trying to sell his compromise pension fix. Beshear came up with the proposal after talks between Democratic House and Republican Senate leaders stalled earlier in the legislative session.

Stumbo said after the closed-door vote that House Democrats had problems with key provisions of Beshear's compromise plan — which would have cut the gasoline tax by 2 cents. Beshear's proposal would have offset the cuts to the gas tax by doing away with some income tax deductions and credits.

Other changes in the tax code and increasing compliance would have generated a total of more than $110 million in the fiscal year that begins July 1, 2014. The same changes would have generated $114 million in the following year.

A little less than half of gas tax and other road-fund money is returned to county and city governments for paving and other projects, Stumbo said. The final vote tally for the House Democratic caucus on the Beshear compromise proposal was not released.

"The caucus is very adamant about protecting the road fund," Stumbo said.

Earlier in the legislative session, the House had proposed using the expansion of lottery games and instant racing — a slots-like game where players bet on previous races — to generate additional money for the pension fund. The fund has roughly half the money it needs to fund all current and future retirees. Its total unfunded liabilities are $33 billion.

The Senate had not passed a funding option, saying that the funding could be dealt with in 2014, when the legislature crafts its two-year budget. Stumbo said late on Monday that the latest plan proposed by the House did not include instant racing. He did not say if the House proposal still included using money for the expansion of lottery games. The Kentucky Lottery Board voted on Friday to expand lottery to include Keno and online lottery sales.

Stumbo said that moving new employees to a 401(K) hybrid plan had been part of Beshear's compromise pension proposal. But many House members had concerns about moving new employees to the hybrid plan, Stumbo said.

Stumbo said late Monday that the latest proposal on pensions did not include a recommendation on moving new employees to a hybrid plan. That issue would be addressed in a separate bill. The House Democrats did not take an official stance on hybrid plans. That decision would be left up to individual members, Stumbo said.

The Senate had passed a hybrid plan earlier in the legislative session as part of its pension fix. The state's unions have opposed moving new employees to a hybrid plan, arguing that it could cost the state more money.

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

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