More Indications from Governor Special Session May Not Include Tax Reform

Posted on January 3, 2018

     Governor Matt Bevin is giving even more indication this week that he intends to call a special session this fall for pension reform and leave tax issues to a later date. The governor has given prior indications that taxes may have to wait. Tuesday, he told WHAS Radio he wants to deal with pensions first. While the governor has not said when the special session will be, he previously told lawmakers he won’t call it until after August 15. There’s still no indication of what a special session on pensions would entail, or what a possible fix of the pension system would involve.

     In Tuesday’s radio interview the governor told host Terry Meiners, “I do not intend to raise taxes to pay for the sins of the past.” Governor Bevin blames prior administrations for leading the pension system into the financial situation it now faces. He told Meiners Kentucky’s pension system “is the worst funded pension system in any state in America.” Proponents of separating the County Employees Retirement System (CERS) worry all pension systems within the Kentucky Retirement Systems (KRS) are being lumped into one vision, despite drastic funding differences within the plans. The governor told Meiners leaving the systems in their current state will lead to the Kentucky Employees Retirement System (KERS) becoming insolvent in less than 10 years. “Unless we work to save the pension system it will fail,” he warned. The Kentucky Employees Retirement System is funded at a much lower level than CERS and many lawmakers have said it is the plan in crisis. Senator Joe Bowen (R-Owensboro) has said separating CERS will allow lawmakers to give the KERS plan the laser focus it requires without making CERS “part of this problem.”

     While the governor has not said what a plan to save the system would look like, he told Meiners the state will, “fulfill the moral and legal obligations that we have to make sure those checks keep coming.” Lawmakers that the Kentucky League of Cities have spoken to in recent weeks have indicated they are waiting on the third and final report from the PFM Group before forging ahead with pension reform. The Group, hired by the state at Governor Bevin’s request, has been studying the state’s pension systems. It’s presenting its recommended reforms to the Public Pension Oversight Board at the August 28 meeting.

     Last week, Governor Bevin released a YouTube video promising to fix the pension system and reportedly told reporters after the Shaping Our Appalachian Region (SOAR) summit in Pikeville that tax reform may have to wait. In Tuesday’s interview with Meiners, Bevin said he doesn’t see tax and pension reform as “mutually exclusive.” He did not address the separation of the County Employees Retirement System in this week’s radio interview nor in the statements made last week. Several lawmakers have remained committed to the idea and Senator Bowen has said the governor assured him separation will be part of the pension reform conversation. Bowen agreed to table Senate Bill 226 during the Regular Session of the 2017 General Assembly at Governor Bevin’s request. The bill called for the separation of CERS and the creation of a new nine-member Board. At a March news conference Governor Bevin said the idea would be considered in the special session.

     The governor did give a few suggestions on possible tax reform during Tuesday’s radio interview. He told Meiners he wants a modernized tax code and questioned why the state has an inventory tax, saying Kentucky is one of only a few states to have such a tax. Bevin also talked about getting rid of the death tax and claimed lawmakers are examining more than 400 loopholes and exemptions in the state’s current tax code. He also indicated his willingness to look at lowering the state income tax and corporate tax rate.

     There is still no indication of possible tax relief for Kentucky cities. City leaders have told lawmakers that local governments need more flexibility when it comes to tax laws. Proposals before lawmakers have included changes in the state’s restaurant tax, hotel tax and gas tax formula. City leaders have also been adamant in voicing opposition to the possible centralized collection of local taxes, an idea that no lawmaker has publicly supported. Representative Brian Linder (R-Dry Ridge) has even likened the idea to “something I think I studied back at the University of Kentucky when I studied the Soviet Union.”

     Governor Bevin did give an indication in Tuesday’s interview that he may want to keep the office he currently holds. The governor said odds were high he will run again for the office. You can find the WHAS Radio interview here.