A publication of the Kentucky Center for Public Service Journalism

Bill Straub: A billion here, a billion there adds up, but even KY House tax plan doesn’t go far enough

Legend has it that Winston Churchill, trying to draw the United States into WWII, famously said you can always count on the Americans to do the right thing – after they’ve tried everything else.

Apparently old Winnie, in his travels, never made it to the Bluegrass where, having tried ad infinitum to escape that which needs to be done, continues on its merry way ignoring its responsibilities and making a bad situation even worse.

It was Mark Twain who referred to Congress as that “grand old, benevolent, national asylum for the helpless,’’ but he might just as well have been talking about the Kentucky General Assembly, which for years now has been talking about the state pension crisis and done little about it.

Meanwhile, the financial obligation only grows more serious as Senate lawmakers keep staring at the legislative calendar for the 60th day to arrive so they can skip out of Frankfort without dirtying their hands while directing blame for the ludicrous situation everywhere but the place it really belongs – at themselves.

The current situation in Congress has led many to reflect whether American-style democracy still works. All they have to do is look at Kentucky to raise further doubts.

It is a fact that Kentucky state government has the worst funded pension system in these United States according to Standard & Poors with a mere 37.4 percent of total obligations funded for its eight different plans. The average for all states for fiscal year 2015 was 74.6 percent. The Kentucky Employees Retirement System, dedicated for non-hazardous state workers, is only 16 percent funded. KERS could run out of money by 2024, leaving thousands of dedicated employees with empty pockets in their golden years.

According to KY.Gov, the commonwealth had the third-highest net pension liability among the states when measured as a percentage of governmental revenues. The ratio for Kentucky’s liability was placed at 185 percent of total annual state revenues — more than twice the average state burden of 75 percent.

We ain’t talking nickels and dimes here, folks. The unfunded liability sits somewhere in the neighborhood of $43 billion. Paying it down will require the state to find an additional $1 billion a year in its $12 billion budget. As of June 30, Kentucky Retirement Systems alone had $26.75 billion more in future pension liabilities than it held in anticipated assets.

“A billion here, a billion there,’’ as former U.S. Senate Republican Leader Everett Dirksen is credited with saying, “and pretty soon you’re talking real money.’’

And that statement was more than 60 years ago and it was about the federal government, not the relatively poor Commonwealth of Kentucky.

Kentucky House (Photo by Tom Latek, Kentucky Today)

This is not a new situation and both Democrats and Republicans share the blame for notoriously underfunding the system for at least 20 years. As governor, St. Matt the Divine has quite appropriately suggested rather strongly that the commonwealth might want to address this matter. And he has taken some steps, increasing contributions to the Kentucky Teacher Retirement System and providing for 100 percent of the annual required contribution in this year’s budget.

But his proposal to overhaul the system and save money, switching future state workers and teachers from a defined benefit plan to a 401(k)-style investment package while implementing substantial benefit cuts, proved to be a non-starter because, among other things, it cost too much dough. The Senate has since taken the bull by the tail and faced the situation with similar results -– teachers and state workers have taken to the streets to protest a plan that cuts cost-of-living raises for retired teachers

The Senate bill has thus far failed to gain the votes necessary to get it passed and has been returned to committee for further work, raising the possibility it will never see the light of day again and lawmakers will go home with a $43 billion cloud hanging over their collective heads.

Given it’s Kentucky we’re talking about here, the upper chamber has failed to consider the lone real option to addressing the situation – raising revenues, which, of course, is a euphemism for raising taxes.

The Kentucky General Assembly is infamous for trying to get by on the cheap, underfunding every cotton-pickin’ thing from schools to universities to public safety to avoid raising taxes and producing the revenue necessary to operate a state in a professional manner. And the Senate is endeavoring to fill a $43 billion hole without new funds, other than some money taken from other necessary programs. It’s akin to filling the Grand Canyon with sand from a child’s plastic beach pail.

Now, wonder of wonders, the Kentucky House of Representatives, traditionally the place where the real yahoos hang out, has stunningly passed a budget that hikes funding for the Kentucky Retirement Systems by $774.5 million and the Kentucky Teachers’ Retirement System by $89.1 million. To achieve this result, and fill the holes left by the inadequate budget proposal offered by St. Matt that stiffed education and other key programs, the lower chamber raised the cigarette tax by 50 cents a pack and imposed a 25 center-per-dose tax on opioids at the distribution level, adding $377 billion over two years to state coffers. Additional changes will bring in another $123 million.

The Senate, where the adults are supposed to reside and assumed responsibility for changing the pension system, is flummoxed. There appears to be little support in the chamber for the House revenue proposals and its overhaul is lost somewhere in the ozone. All of this should make for some interesting negotiations when the legislative deadline arrives.

St. Matt, by the way has remained fairly mum on the House tax plan. Apparently he is too busy spouting nonsense about guns to take notice. But on Wednesday he emerged from his well-armed bunker to rip teachers and other state employees for opposing his own inadequate pension reform proposal, using the measured tone the commonwealth has come to love and respect.

Appearing on WVLC-FM in Somerset, the divine one harrumphed, “The reality is, this is a group of people that are throwing a temper tantrum. If they get what they wish for, they will not have a pension system for the younger people who are still working. And that to me is remarkably selfish and shortsighted. But we’re going to try to save people in spite of themselves.”

Gee thanks, guv.

Raising taxes in Kentucky is rare but possible. In 1987, Wallace Wilkinson, a Democrat, ran for governor under the banner of “No new taxes – a lottery,’’ maintaining that the state game would resolve Kentucky’s eternal fiscal woes.

Wilkinson, who was a precursor to the Trump-Bevin political style before it was cool, got his lottery but he also got a Kentucky Supreme Court order telling him and the legislature to spend more money on education, particularly in hard-pressed school districts where the property tax failed to produce reasonable revenues.

No-Tax Wilkinson wound up concurring with the court opinion and – surprise surprise – reversed himself, offering a tax plan that increased the cigarette tax, levies on corporations and eliminating sales tax exemptions for legal, engineering, and advertising services.

The General Assembly preferred a simpler route, raising the sales tax a penny to six percent, a gambit that raised Wilkinson’s hackles (something that was never difficult to do). But he eventually fell in line. The result was the Kentucky Education Reform Act, which has benefitted the state in a multitude of ways as its educational achievement level gone from the bottom of the pile in education ratings to about dead center among the states, according to Education Week calculations.

So it can be done.

The House plan doesn’t go far enough – an overhaul of the entire tax system is called for. But the lower chamber is well ahead of its alleged big brother.

The NKyTribune’s Washington columnist Bill Straub served 11 years as the Frankfort Bureau chief for The Kentucky Post. He also is the former White House/political correspondent for Scripps Howard News Service. A member of the Kentucky Journalism Hall of Fame, he currently resides in Silver Spring, Maryland, and writes frequently about the federal government and politics. Email him at williamgstraub@gmail.com.

Related Posts

Leave a Comment