Bevin Says Tax Reform Will Have To Wait Until Pensions Are Fixed

Aug 9, 2017

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Gov. Matt Bevin says changing the state’s tax code will have to wait until lawmakers come up with solutions to Kentucky’s public pension crisis.

The governor had promised several times this year to call lawmakers back to Frankfort to find ways to bring more revenue into the state’s coffers and make changes to the ailing pension systems at the same time.

But after Republican lawmakers voiced concerns that Bevin’s revenue strategy would include a pitch for raising taxes, he told WEKU that the pension and tax issues would be addressed in separate legislative session.

“It may require a separate special session or it may in fact require our ability to tag it on to this existing one, but at this moment in time my thought is to focus first on the pension issue,” Bevin said in an interview with WEKU.

Kentucky has a massive public pension debt, with an estimated shortfall ranging from $37 billion, according to state retirement officials, to $70 billion according to credit rating agencies like Moody’s, which recently downgraded the state’s rating because of the pension crisis.

Meanwhile, the state is having trouble meeting its budgets under the current tax scheme. According to the Pew Charitable Trusts, Kentucky generated 98.9 percent of the money it needed to cover current budget expenses between 2002 and 2015. The state had budget deficits in 8 out of the 14 years.

If Bevin calls a special legislative session to tackle pension issues, lawmakers would likely take a look at changing the retirement benefits structure for new employees.

Last week, Bevin took to social media to reassure state pensioners after rumors swirled that lawmakers would try to reduce benefits to current employees and retirees during a special legislative session.

“We have a legal and a moral obligation to those of you that are retired to fulfill the promises that have been made to you,” Bevin said in a YouTube video.

Bevin hasn’t provided specifics about how he plans to fix the pension systems. During the 2015 gubernatorial race, he suggested moving new state employees onto 401(k)-style retirement plans — participants wouldn’t draw out of the pension systems but also wouldn’t contribute money into it.

Jim Carroll, a retired state parks employee and spokesman for an advocacy group called Kentucky Government Retirees, said he appreciated the governor’s reassurances about not reducing benefits for current pensioners.

“The next step would be for him to come forth with a proposal which it is clear that there would be no attempt to take away our contract rights to benefits,” Carroll said.

But Carroll said he hopes lawmakers come up with a solution that dedicates more revenue to pensions because the state’s retirement systems are facing a looming cash crunch that wouldn’t be helped by moving new workers onto 401(k) plans.

“I find it a bit confusing to discuss the notion of changing plan design as if that has anything to do with reducing the costs in the next biennium or the next biennium after that,” Carroll said.

Republican lawmakers have been hesitant from the start about Bevin’s plan for tax reform, but the governor says that finding new revenue for pensions under the current tax scheme will put a strain on other state obligations like education and health care.

During his State of the Commonwealth Address earlier this year, Bevin said that his tax plan would not be revenue neutral.

He called for lawmakers to review about 300 tax breaks that are currently available in Kentucky and advised that popular ones might have to be eliminated.

A consultant hired by the governor’s office estimates that the state will need about $700 million more every year — that’s about 7 percent of the state’s annual budget — to put the state’s pension systems on sound financial footing.