Bevin was right the first time: Pension fix will sink without tax reform
It’s not surprising that Gov. Matt Bevin’s pension plan has run aground in the House because without a new revenue stream it had little chance of sailing.
Lawmakers and Bevin should return to the governor’s original timetable which combined tax and pension reform. And they should tackle both challenges in the open.
The General Assembly convenes in regular session Jan. 2. Putting together a tax proposal by then that provides desperately needed new revenue would not be difficult. The tax code has been studied and restudied. Its weaknesses and opportunities are well known.
What would be hard is summoning the political will and leadership to close the loopholes and fix the inequities — the sacred cows that just nine months ago Bevin vowed to slay.
The Republican governor’s pension plan, in its current form, lacks the votes to clear the Republican-controlled House.
The politics have been complicated by the revelation of a sexual harassment settlement reached last month by House Speaker Jeff Hoover with a female staffer.
But even without Hoover’s problem, Bevin’s plan was running into trouble as lawmakers dig into the details and hear from alarmed constituents.
Without money to pay public employees what they’re already owed, teachers and other stakeholders would be crazy to agree to the sacrifices demanded of them in the 505-page draft pension bill that was concocted in secrecy and released to lawmakers Oct. 27.
In the week that the draft has been available for inspection, a bevy of hard-to-explain surprises — such as a $243 million “tax” on public employees’ paychecks and loss of line-of-duty death benefits for many police and firefighters — have been discovered, further dashing trust in the plan and the secret process that produced it.
Squeezing in a special session on pensions before the regular session in January would be seen as an attempt to railroad through one-sided sacrifices without any guarantee that the state’s debt to its public employees will be paid. Until a plan gains enough Republican supporters in the House, there’s no point in calling a special session anyway.
In his State of the Commonwealth speech in February, Bevin called on lawmakers to “think big, be bold” in overhauling the state’s antiquated tax code. Bevin said he would call a special session to do away with “sacred cow” exemptions. He made clear that revenue-neutral reform, in which there would be no net increase in tax collections, would not do.
In August, Bevin changed course, saying he wanted to deal with taxes and pensions separately and take up pensions first. Bevin has never explained the change of strategy but it seems not to be working.
Lawmakers have known for a long time that the tax code needs reforming. Tax breaks ($13 billion a year) drain more support from education, public safety and other state commitments than the state collects ($11 billion) in taxes for the General Fund. And Kentucky’s failure to tax services makes no sense. If you pay someone to groom your dog, you pay no state tax. If you buy shampoo, clippers and brushes for Fido, you pay a 6 percent sales tax.
Bevin has succeeded in putting an intense focus on pension underfunding.
Now he and lawmakers must do the hard, politically risky work. Bevin’s words to lawmakers from last February have never rung truer: “This is what you were elected to do, this is what the people want of us.”