Gov. Steve Beshear says he expects discussions on reforming the state’s tax structure and public pension systems to begin in the upcoming 30-day session, but passing them may require a special session.
The two issues are among Beshear’s top priorities next year, he told reporters during a wide-ranging, year-end interview in his Capitol office Thursday.
Beshear said he’d like to take action on both in the upcoming session, but any attempt at tax reform would require a super majority vote in the General Assembly – 60 members in the House and 22 in the Senate.
“That’s a practical problem that you have to look at,” Beshear said. “When you’re talking about taxes, getting one more than half is a pretty good accomplishment any time you do it, so we’ll see.
“I do think we need to address both of these issues, and hopefully we can in this regular session, and if not, we need to continue the discussion and then if we can find some common ground, then have a quick special session and take action.”
A legislative task force made several recommendations to shore up the state’s public pension systems, which face a combined $18.1 million unfunded liability.
The largest fund for state employees, the non-hazardous Kentucky Employees Retirement System, has less than a quarter of the money needed for future pension and insurance obligations, actuaries told Kentucky Retirement Systems trustees earlier this month.
The task force’s recommendations include fully paying the actuarially required contribution into the retirement systems and shifting new state hires to a hybrid cash-balance pension plan without an inviolable contract. Making full contributions means the state will have to pay about $766 million more than expected to the retirement systems in the next two-year budget cycle.
That’s one reason Beshear said he’d like to see both issues handled in tandem. He said he sees “sort of a natural link” between the two.
“There’s a number of areas where, in my mind, we’re going to need some more revenue,” Beshear said, also noting education issues like the SEEK formula for school funding and school safety programs.
“I think that naturally brings up the issue of tax reform.”
He later added, “I don’t think any of us want to go over here and just pass a law that says we’ve got to put the full ARC (actuarially required contribution) in, but we don’t have any idea where the money’s going to come from.
“I think we owe it to the people of the commonwealth to come up with a real solution, so let’s identify where the money’s going to come from to fund the pension system the way it should be funded.”
A tax reform commission chaired by Lt. Gov. Jerry Abramson recently presented Beshear more than 60 recommendations that are projected to bring some $690 million in additional revenue and improve the state’s competitiveness as the economy recovers.
Those recommendations include lowering the exemption on taxable retirement income from $41,110 to $30,000, capping itemized deductions at $17,500 and including select services in the state’s sales tax base.
Beshear, who noted he had cut $1.6 billion from the budget since taking office, said he wants to digest the commission’s report before sitting down with legislative leaders to find some agreement on reforms and areas in need of additional revenue.
“Any time you bring up the issue of taxes it’s very controversial, but it’s time to start those public discussions,” Beshear said.
Beshear will work with new leadership in the Republican-led Senate during the upcoming session. He appointed former Senate President David Williams, who had led the chamber since 1990, as a circuit judge in Cumberland County.
Senate Majority Leader Robert Stivers will follow Williams as president.
Beshear, who bested Williams in the 2011 gubernatorial election, said he’s looking forward to “a good working relationship” with leaders in both the Senate and House during the upcoming session.
“That doesn’t mean we’ll all agree on everything,” he said. “I know we won’t because folks come from all different parts of the political spectrum, but I think we’ll have some good discussions. And you know what? When you can sit down together and talk about issues, more often than not you can find some kind of common ground to more forward and solve those issues.”
The governor also discussed Kentucky having the nation’s second-highest job growth rate of 2.6 percent, recently enacted legislation aimed to curb prescription drug abuse and so-called pill mills, industrial hemp, legislative redistricting and expanded gambling.
On gambling, Beshear said he hopes to put a constitutional amendment before voters to expand it, though an amendment failed to pass the General Assembly earlier this year.