FRANKFORT — Gov. Steve Beshear spent the bulk of his 45-minute State of the Commonwealth speech Wednesday trying to drum up support for a sweeping tax reform package that would generate cash for struggling schools and an ailing pension system.
If Kentucky wants to prosper, lawmakers must overhaul the tax code this year to generate significant new revenue for years to come, the two-term Democratic governor told a joint session of the House and Senate in his sixth State of the Commonwealth speech.
"The question for us in this room is simple but soul-searching: Are we courageous enough to invest in our children's future?" Beshear said.
He also urged lawmakers to overhaul and fully fund the state's pension system, which has roughly half the money it needs to pay all current and future retirees.
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"We will not be able to invest in critical areas like job training and education nor solve monstrous problems like pension liabilities unless we think strategically and act aggressively and courageously," Beshear said.
The policy-heavy speech was somber, garnering relatively few rounds of applause, as Beshear described how slashing more than $1.6 billion from state's budget in recent years has gutted key services, particularly education.
Although the state has maintained the main funding formula for schools, it has cut many education programs, such as $21.7 million for textbooks. School safety funding has dropped by 60 percent, and 73,000 needy college students did not receive financial aid, he said.
Last week, the state announced it was cutting more than $50 million from a program that helps pay child care expenses for low-income families. More than 8,700 families will be dropped from that program. Meanwhile, the state's Meals on Wheels program has delivered 300,000 fewer meals to seniors, Beshear said.
"Just getting by is no longer a true measure of success," Beshear said. "Not if our real goal is to create a more vibrant economy and a higher quality of life for our people."
Kentucky's revenue has started to increase as the economy improves, but any new money generated will be gobbled up by ballooning costs for state worker pensions, Medicaid and other programs, Beshear said.
"So my friends, anticipated revenue growth will not be rigorous enough to transform this state," Beshear said. "Again, that's not rhetoric — that's math. The numbers are just too big. The need is just too great."
Kentucky has commissioned 12 studies on its tax code since 1982, and all of them have shown that state revenue does not grow in proportion to the economy.
The most recent report, completed last year, predicted that Kentucky will have $1 billion less than it needs to fund basic services by 2020. A task force appointed by Beshear recommended changes to the state tax code that would generate about $659 million in new revenues.
"We need a tax structure that's fair to all of our citizens and easy to understand; that helps recruit business, not drive it away," Beshear said.
Beshear said he has been meeting with state legislative leaders to determine if they can pass pension and tax reform legislation sometime this year.
He has previously said it is likely that lawmakers will tackle how to fund the ailing pension system during a special legislative session rather than the current 30-day legislative session.
To approve a revenue measure during a 30-day session, state law requires support from a supermajority of lawmakers. That rule would not apply during a special session.
Beshear said after Wednesday's speech that he would like pension and tax reform to be addressed together, either during the current session or during a special session.
"We have to tackle tax reform and pension reform this year," Beshear said. "We can't wait until next year."
But Senate President Robert Stivers, R-Manchester, said after Beshear's speech that he is not sure tax reform is needed to fix the state's ailing pension system. "It is my belief that coming out of the recession, we can create job growth and growth in the budget," Stivers said.
The Senate is expected to pass a pension reform bill on Thursday. However, the overhaul bill — which would move new employees into a hybrid pension plan — does not include needed funding, believed to be more than $300 million beginning in July 2014.
But House Speaker Greg Stumbo, D-Prestonsburg, said "a dedicated funding stream" will be needed to enact pension reform.
Stumbo said he and House State Government Committee Chairman Rep. Brent Yonts, D-Greenville, are looking at several options to find the revenue, but he declined to say what those might be. Stumbo said the options would not be a burden to taxpayers.
Stivers estimated that $79 million to $122 million will be needed in state revenue to pay for pension reform. Stumbo said the House expects the cost to be about $100 million.
Republican House Minority Leader Jeff Hoover said he was disappointed that Beshear's speech did not give specifics on pension reform or tax reform.
"There was no specific proposal, and there was no specific agenda on how to solve it. That's concerning to me," Hoover said. "I really like him personally. I was expecting some specific proposals from him."
Beshear's speech, which outlined his legislative priorities for the session, also mentioned legislation to improve child booster seat rules, toughening penalties for texting while driving and improving perinatal care and newborn screenings. For the fourth time, Beshear pushed for legislation to increase the dropout age from 16 to 18. Similar measures have repeatedly died in the Republican-controlled Senate.
Beshear also backed House Bill 190, a statewide smoking ban in public places.
"It's time for us to begin looking seriously at doing this on a statewide level, and to extend the protection to all our citizens," Beshear said.