Politics & Government

House Democrats propose taxing and expanding lottery sales to pay for pensions

FRANKFORT — Democratic House leaders want to raise cash for the state's ailing pension system by adding a 6 percent sales tax to Kentucky Lottery purchases and expanding the selection of lottery games.

House State Government Chairman Brent Yonts, D-Greenville, said adding the sales tax could generate about $49 million a year for the state. Offering more lottery games could generate an additional $70 million to $90 million, he said.

Combined, Yonts said, the changes would provide the $120 million in General Fund money needed by July 1, 2014, to fully fund Kentucky's pension system for state workers, which has only half the money it is projected to need to pay current and future retirees.

Yonts said his committee will vote Tuesday on the House's version of Senate Bill 2, the pension overhaul bill. The House Appropriations and Revenue Committee also will vote Tuesday on the lottery revenue bill, Yonts said.

Senate Republicans, who approved their version of SB 2 earlier this month, criticized the lottery proposal Friday.

Senate President Robert Stivers, R-Manchester, said taxing lottery sales probably would diminish sales and hurt a lottery-financed college scholarship program for Kentucky students who do well in high school.

"You'd be robbing Peter to pay Paul," said Stivers, who called the House plan "a bad idea."

Yonts dismissed Stivers' fear that scholarship money would be affected.

"Those scholarship programs will be held harmless," Yonts said. "We would continue to fund them at 2012 levels."

The Kentucky Lottery posted its most profitable year in 2012, with total sales of $823.5 million. About $216 million of that money went into scholarship programs. In fiscal 2011, lottery sales were $772.3 million.

House Democrats have considered a variety of proposals to generate revenue for the pension system, including raising the tax on a pack of cigarettes from 60 cents to $1.

House Speaker Greg Stumbo, D-Prestonsburg, said leaders thought changes to the lottery would be the most likely revenue-generating option to pass. Any proposal to raise revenue during the current 30-workday legislative session requires 60 votes, which means Republican support is essential.

Stumbo said he hasn't yet talked to House Republicans about whether they will back the bill. There are 55 Democrats and 45 Republicans in the House.

House Minority Leader Jeff Hoover, R-Jamestown, said some members of the GOP caucus indicated Friday that they could support the lottery proposal. But Hoover said many House Republicans are concerned that Democrats want to retain a traditional pension plan for future state workers rather than move them into a 401(k) hybrid plan, a cornerstone of the Senate Republicans' pension plan.

"The issue is going to be what's in the whole package," Hoover said.

Chip Polston, vice president of communications for the Kentucky Lottery, said the agency was aware of the House's proposal. He declined to comment about whether taxing lottery games would hurt sales or how the lottery could expand to generate more revenue.

"We view it as our role to follow the lead of decision-makers in Frankfort as to the direction in which they want our operation to go," Polston said.

Gov. Steve Beshear, in a written statement, did not dismiss the idea of using lottery-related revenue to pay for pensions. Beshear has pushed the legislature to pass a pension overhaul bill this year.

"We've already cut $1.6 billion from our state budget in the past five years, and I'm not willing to fund the pension program by carving money out of crucial services like education," Beshear said. "I'm looking forward to continuing the dialogue."

The pension overhaul plan approved by the Senate this month did not include a new source of revenue to fund the proposed reforms. Senate Republican leaders have said they hope that a growing economy will boost state revenue enough to fully finance the pension system when the General Assembly approves a two-year state budget in 2014.

Still, Stivers said Friday that he has not ruled out raising new revenue for state-worker pensions.

"No, I'm not drawing any lines. That's something I've tried to avoid," Stivers said. "But if we can do nothing else, let's at least get the mechanism changed."

Stivers said that last year, the House and Senate put together a bipartisan group to study the state's public pension problems and recommend solutions.

"We have no pride of authorship. We want to deal with the policy," he said.

House Democrats contend that the Senate's plan is irresponsible because it doesn't address the crux of the pension system's problem — the need for additional funding.

"It's an unfunded mandate," Stumbo has said.