FRANKFORT — Democrats on a House committee made major changes Tuesday to a proposed overhaul of Kentucky's ailing pension system, raising the hackles of Republicans.
The House state government committee sent a revised Senate Bill 2 to the full House for consideration on a 17-1 vote. Ten Republicans did not vote.
Later in the day, the House budget committee approved a measure to fund the pension reform bill that draws heavily on gambling proceeds. Eleven GOP members did not vote on it.
House Speaker Greg Stumbo, D-Prestonsburg, said the Democratic-controlled House may vote on the reform bill and the funding measure, House Bill 416, as early as Wednesday. The funding bill would need at least 60 votes in the chamber.
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Senate President Robert Stivers, R-Manchester, and Senate Majority Leader Damon Thayer, R-Georgetown, said they were "underwhelmed" by the House changes in the Senate's proposal to deal with the primary issue of this year's General Assembly.
Stivers said the House plan "really doesn't change the pension system." Thayer said the House plan "guts" the Senate bill.
Several Republican members of the House State Government Committee grumbled that they had only minutes to review the House committee substitute to SB 2 and that it contained no actuarial analysis.
They also said the GOP-led Senate's bill was based on a bipartisan task force created last year to come up with recommendations on the pension problems.
State Rep. Brent Yonts, D-Greenville, the House State Government chairman, countered that he has never seen the legislature completely adopt a task force's report.
The House version of SB 2 would allow future state workers to remain on a defined-benefit pension plan. Senate Republicans have proposed shifting future workers to a hybrid 401(k)-style plan that offered a defined contribution from the state and a guaranteed minimum return on investments.
The House version makes several changes to SB 2, including:
Allowing the General Assembly to amend the employee contribution rate for future state workers, subject to approval by a new 11-member public pension oversight board.
Allowing cost of living adjustments for retired members if the oversight board determines that funds are available and the General Assembly enacts legislation to provide them, or if the General Assembly pre-funds the adjustments. The Senate's version of the bill did not offer cost of living adjustments.
The Senate, which approved its version of SB 2 this month, did not adopt a funding plan to pay for pension reforms, saying the issue could be addressed next year when the legislature takes up the two-year state budget.
Stumbo said the House funding plan would rely on money from expanded instant racing at horse racetracks, from a new Keno game operated by the Kentucky Lottery Corp., and by allowing lottery games to be played online.
He stressed that his plan would mean no new taxation on Kentuckians and that the gambling involved in it is allowed under current law.
However, The Family Foundation is challenging in court the constitutionality of instant racing, which is betting on previously run horse races.
Martin Cothran, a spokesman for the foundation, said the uncertainty in the court case "could completely undermine" what Stumbo wants to do. Also, leaders of Kentucky's horse industry might take issue with Stumbo's plan to help fund the pension system with tax revenue from instant racing.
Stumbo said his plan could generate more than $100 million a year for the pension system within three to five years, which is how long he estimated that it might take for more racetracks to implement instant racing, and for the Kentucky Lottery to implement Keno and online lottery sales.
But racetracks have been reluctant to add instant racing machines until the state courts have ruled on its legality. Keeneland has said that plans for a new quarter horse racetrack near Corbin rely, at least in part, on the Kentucky Supreme Court's upholding instant racing or the General Assembly passing legislation filed this month to resolve questions about the legality of instant racing.
Stumbo said the House would not proceed with instant racing legislation this year because he thinks the courts will find the games legal, although a final ruling could take years.
Stumbo said his plan would not alter how the state taxes the first $300 million gambled on instant racing each year. After the $300 million threshold is reached, the state's 1.5 percent parimutuel tax would be earmarked for the state's pension plan.
On the first $300 million, the parimutuel tax would continue to be divided among the state General Fund, the Kentucky Thoroughbred Development Fund and a variety of equine research projects. The General Fund gets 0.35 percent of the total wagered, leaving 0.75 percent for the development fund and 0.4 percent for research efforts.
Currently, bettors wage about $20 million a month on instant racing at tracks in Franklin and Henderson. That falls well short of Stumbo's $300 million annual threshold.
Instant racing was initiated by the Kentucky Horse Racing Commission as a way for racetracks to boost purses and generate revenue without other forms of gambling.
David Switzer, executive director of the Kentucky Thoroughbred Association, said that limiting the Kentucky Thoroughbred Development Fund to $2.25 million a year wouldn't give them much to work with.
The fund used to collect about $10 million a year to boost purses, but competition from other states has driven Kentucky racing revenue down and has cut the fund to about $5 million.
"Now if they're going to cap it at $2.25 million ... we have to figure out another way to bring that up," Switzer said.
Keno, Stumbo said, is a type of lottery game with instant results. Players guess which numbers will be drawn at random and get paid based on how many numbers they guess correctly.
Jim Carroll, co-founder of Kentucky Government Retirees, said his group supports Stumbo's funding measure.
"Failure of the General Assembly to act on this measure during this session would further jeopardize the fiscal integrity of one of the worst-funded pension systems in the country," Carroll said.
But Carroll did not like the House version of the Senate reform plan.
"Amending Senate Bill 2 is putting lipstick on a pig," he said.
Carroll also said the House version leaves open the possibility of increasing employee contribution rates for existing employees and "establishes an elaborate and wholly unnecessary set of criteria for permitting cost of living adjustments and packs the Kentucky Retirement Systems board with five special interest appointees."