Budget woes need revenue not miracles

Kentucky State Capitol in Frankfort
Kentucky State Capitol in Frankfort jcheves@herald-leader.com

Rep. Jim Wayne praised John Chilton at a legislative meeting in late July, saying the state budget director always remains calm and diplomatic while presenting the facts and figures about Kentucky’s finances.

The Louisville Democrat was willing to be more blunt about the state’s budget situation: “We’re at the edge of a cliff.”

Chilton remained calm, and he didn’t disagree.

Soon legislators will step up to that cliff at a special session that Gov. Matt Bevin has promised to call this fall to deal with an underwater budget, ballooning pension crisis and outdated and inefficient tax code.

They may not need to be as bold as the governor said during his State of the Commonwealth address, but they will need to be brave.

It is fantastical thinking to believe that Kentucky can honor its pension obligations and invest in education, repair or even maintain its infrastructure, operate the public safety and judicial systems individuals and business rely upon without raising more revenue.

Consider Chilton’s report: a pension shortfall estimated from $35 billion to $82 billion; $10.5 billion in general fund revenue collected in the state fiscal year that ended June 30. The state’s rainy-day fund is badly depleted and, concerned about the state’s ability to pay its debts, a national credit rating agency recently downgraded Kentucky’s rating.

After years of severe cuts to even vital government services, including education at all levels, the state still had a $138 million shortfall in the fiscal year that ended June 30.

Good tax policy is not magic. It’s all about spreading the obligation of funding government as equally as possible over the broadest group of earners. Kentucky is failing in that now.

Total state and local taxes paid, as a share of family income, is 6 percent for the highest 1 percent of earners, and 7.4 percent for the next highest 4 percent. But the 75 percent of families in the middle get hit much harder, paying from 8.9 percent to 10.6 percent of their income, while the lowest fifth of earners pay 9 percent.

The first step in correcting that upside-down structure is taking a sharp pencil to tax breaks, something Bevin touted in his February speech.

Kentucky gives out more dollars in breaks than it collects in taxes and each legislative session new giveaways are enacted. Many of these don’t have a sunset clause that would require periodic review, so they stay on the books, benefiting the special interests that had the power to lobby for them.

It’s not clear what Bevin will propose for his special session. Last week he said on a radio show that the pension system is “on the cusp of insolvency,” but also said he wouldn’t propose any tax increases.

Bevin hinted at changing pension benefits in his radio remarks, saying there are, “a few thousand people who will be receiving a pension from the state, and there are millions that are paying for it,” but on Thursday he posted a video saying he is determined “to meet the legal and moral obligations we have to you.” Bevin said he had met with legislative leaders that afternoon and they, like he, are determined to salvage the pension system.

Anti-tax fervor is understandable but voters and taxpayers can’t demand or expect miracles from the governor or members of the General Assembly. That’s what got us where we are.

But they can, and must, demand that their elected officials drill down into the swamp of tax breaks to create a more equitable tax system that will put Kentucky back on a path to sustainable governance.