Kentucky Governor Matt Bevin vetoed the legislature’s proposed two-year state budget and a tax bill that generates hundreds of millions of dollars to help fund it.
“The whole thing is not as thoughtful or as comprehensive as it needs to be,” Bevin said Monday of the tax plan during an almost 30 minute harangue about fiscal responsibility. “If we’re going to do tax reform — and we need to do tax reform — it needs to be comprehensive.”
The tax bill, which was introduced and passed on April 2 before it was available to the public, applies Kentucky’s 6 percent sales tax to 17 services, increases the cigarette tax by 50 cents per pack, and cuts the individual and corporate income tax to a flat 5 percent tax. It also cuts some typical tax deductions, including those for medical expenses, medical insurance, paid taxes and investment income.
In his veto messages, Bevin said the legislature failed to pass a balanced budget, as required by state law, citing a letter he received last week from state budget director John Chilton that said the legislature’s revenue bill will generate about $50 million less than anticipated.
Bevin said he appreciated the Republican-led legislature’s attempt at tax reform, but said the plan needlessly complicates the state’s tax code, disproportionately affects small businesses and fails to repeal the inventory tax on businesses.
“There are many legislators who literally just don’t understand this. They don’t,” Bevin said. “They’re smart people, they’re intelligent people, they’re educated people on many fronts. They don’t understand finance, they don’t understand pensions. And yet they’re the ones who are going to have to make decisions.”
Lawmakers are scheduled to return to Frankfort on Friday and Saturday to consider overriding any vetoes Bevin makes.
In a joint statement, Senate President Robert Stivers and House Speaker Pro Tempore David Osborne said they are comfortable with the Legislative Research Commission’s projections for the budget and revenue bills.
“We believe Governor Bevin is misguided in his interpretation of the budget and revenue bills, as we are comfortable with LRC staff revenue projections,” the statement said. “To our knowledge, the governor has had no discussions with any legislators on the details of this budget and what he might consider to be a shortfall. We believe Governor Bevin would be best served to meet with legislators to understand their thoughts and rationale before making a final decision on vetoing the revenue and/or budget bills.”
Bevin called for comprehensive tax reform in his 2017 State of the Commonwealth Address, but he has never offered a plan of his own. “We still need revenue from somewhere,” he said Monday.
Much of the $486.9 million in revenue generated from the tax bill will be used to fund education as teachers across the state have held “sick-outs” and rallies that have closed down school districts. Bevin, who proposed a plan that would have cut state funding for school transportation and would have provided less money per-pupil than what the legislature passed, said he wasn’t concerned about how his vetoes would affect education.
“It’s illegal for them to strike in this state,” Bevin said. “I would not advise that, I wouldn’t, I think that would be a mistake. The issue is not the teachers, the teachers want to teach their children. The KEA (Kentucky Education Association) has been a problem, it really has. They’ve been very loud after refusing to be a part of the solution, even though in reality their members are going to the beneficiary of us getting it right.”
KEA President Stephanie Winkler said she was disappointed Bevin called the group a problem.
“KEA members live, work and pay taxes in every community in this state,” she said. “If the governor wants to work with ‘job creators and taxpayers’ why does he insist on insulting so many people who do both?”
Winkler also said KEA will urge lawmakers to overturn Bevin’s vetoes.
“HB 200 and HB 366 are not perfect,” Winkler said. “But instead of sending the legislature back to square one and forcing a special session that the citizens of Kentucky should not have to pay for, the governor should sign both bills and begin doing now what he should have been doing all along: engaging the legislature and the people of Kentucky in constructive, forward-looking, bipartisan discussions aimed at finding new solutions to the revenue challenges facing the commonwealth.”
Bevin danced around the topic of whether he will veto the pension overhaul bill, which also raised the ire of teachers.
Lawmakers claimed the pension bill, which mostly impacts future teachers and government employees, would save only $300 million over the next 30 years. Bevin was quick to point out that those savings are a fraction of the more than $40 billion unfunded pension liability the state faces.
“We have not fixed the pension problem,” Bevin said. “We have not. Do not let anyone delude you into thinking that we have now solved the pension problem. We have not.”
Though Bevin said the plan didn’t do enough to address Kentucky’s ailing pension system, he was still complimentary of those who voted for a bill he said prevented the problem from getting worse.
“I applaud those men and women who were courageous enough in the face of a whole lot of people encouraging them to do nothing at all, that they at least did something,” Bevin said. “Something is better than nothing.”
Democratic lawmakers expressed support for Bevin’s decision to veto the tax changes. In a joint statement from Senate Minority Leader Ray Jones and House Minority Leader Rocky Adkins, the two Democratic leaders said the bills were not “transparently vetted” and referenced a study performed by the Institute on Taxation and Economic Policy that found that the tax bill would raise taxes for 95 percent of Kentuckians.
“These vetoes confirm the House and Senate Democrats’ concerns that the budget and revenue plan are wrong for Kentucky and irresponsible,” the statement said. “That is especially true of the revenue measure, which shifts the tax burden to 95 percent of working families while lowering taxes for corporations and the richest five percent.”