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Beshear looks for common ground on tax reform

Jan. 06, 2013 @ 10:15 AM

FRANKFORT, Ky. (AP) — Needing cash to shore up Kentucky’s weakening pension system for government retirees, Gov. Steve Beshear is searching for common ground that could produce a package of tax reforms when lawmakers convene Tuesday for a 30-day session.

“I’m confident that we’ll be able to find some common ground,” Beshear told The Associated Press in an interview last week. “I think there’s a general feeling that it would be good to broaden our tax base, that it would be good to make sure that we’re as competitive as we can be with other states that we compete with from a business climate standpoint, and I think the idea that we need more revenue is gaining traction.”

A commission appointed by Beshear last year to recommend tax reforms proposed a model that would generate about $690 million a year in additional revenue. Most of the money would come from taxing the pension income of retirees who draw at least $30,000 a year and from extending a sales tax to household utilities and a litany of other services that have traditionally been exempt in Kentucky.

Both could be hard sells in the Legislature.

Beshear had asked the commission to recommend a simpler tax code that would generate enough revenue to meet the state’s needs even during economic recessions, the last of which led to about $1.6 billion in state budget cuts. The Democrat complimented the panel’s work.

“We had some very conservative business people, some very liberal advocates and a lot of folks in between,” he said. “The fact that they all came to agreement on a fairly large series of recommendations, I think, speaks well of the work that they did and the information that they gathered. Now it’s my job to sit down and sift through that and talk with legislators about what’s doable.”

Beshear said he’s not sure lawmakers will have time to pass tax reforms in the regular session, which is scheduled to end in mid-March. If not, he said he may consider calling a special session to deal with the matter.

Republican Senate President Robert Stivers and Democratic House Speaker Greg Stumbo have been focusing attention on Kentucky’s government pension system, which has a $33 billion unfunded liability. Both have made that a top priority heading into the legislative session.

Last year, the Pew Center on the States recommended issuing bonds to shore up the pension system. That proposal received a lukewarm response at a time when government debt has become an overriding political issue.

A separate legislative task force studying the pension crisis rejected the recommendation while at the same time calling for full funding for all the state’s retirement plans. The task force also suggested repealing cost-of-living increases for all retirees and moving new employees to a hybrid plan that blends defined benefits with defined contributions.

Beshear said the state needs a source of revenue not only to pay down the unfunded liability but to fully fund the annual payments necessary to keep the pension system solvent.

“There’s not a lot of extra cash laying around,” he said. “And I’m certainly not going to take money away from education, public safety, economic development, things that are priorities for all of us, to fund the pension system.”

Clearly, not everyone is sold on the notion, including Jim Waters, head of the Bowling Green advocacy group Bluegrass Institute for Public Policy.

“I think the premise is wrong,” Waters said. “We do not have a revenue problem. We have a spending problem. We have a hard time being convinced that $9.5 billion a year, which is what Kentucky takes in, isn’t enough revenue to meet the needs of a small state.”

Numerous Republican lawmakers agree. And that, coupled with a quirky requirement that requires a three-fifths supermajority to pass tax measures in odd-numbered years, could make it all the more difficult to pass a tax reform package in the upcoming session.

“I would obviously rather deal with it in the regular session, but being realistic I’m not sure that we’ll be able to do that, because of the time limitations and the constitutional requirement of a supermajority,” Beshear said.