By Lorie Hailey
FRANKFORT, Ky. (March 26, 2013) — It may seem like the regular session of the Kentucky General Assembly is going to end without comprehensive state pension reform, but the Senate and House have come a long way in the past few days.
Gov. Steve Beshear spent much of the weekend meeting with legislative leaders to find a compromise plan to reform the state pension system, which is underfunded by nearly $30 billion. He and Kentucky’s legislators on Monday debated the terms of reform and ways to fund it late into the evening.
The governor presented a proposal that would have eliminated an income tax credit and reduced the gas tax by two cents, but House Democrats rejected it.
“There was concern that reducing the gas tax by two cents could adversely affect road projects, especially those managed by our local governments,” said Brian Wilkerson, spokesperson for House Speaker Greg Stumbo.
Instead, the House Democrats voted in favor of a modified spending plan that replaces the two-cent reduction in the gas tax with a one-cent reduction and a sales tax break for those who trade-in a used car for a new one, Wilkerson said.
“Under the revised plan, Gov. Beshear pledged to back-fill some of the road money the one penny would generate so that counties would not face a significant burden,” Stumbo’s spokesperson said.
The trade-in tax break would be popular with car buyers, he said, citing a similar plan in 2009 that set aside $25 million that was gone in 10 months.
“Current law requires new-car buyers to pay sales tax on the purchase of a new vehicle, even if they are trading in an older one. Under this proposed change, these buyers would only pay sales tax on what they actually paid,” Wilkerson said. “In other words, if they buy a $20,000 car and their trade-in is valued at $10,000, they would only pay tax on the $10,000 rather than the full value.”
Stumbo described the plan as a viable funding solution that could clear the Democratic-controlled House with help from minority Republicans.
One of the biggest divides among the Senate and House, however, remains the hybrid cash balance plan. Senate Bill 2 calls for the creation of a 401(k)-like hybrid plan for new government employees, but the House amended the bill to allow new employees to remain on a defined-benefit pension plan.
Wilkerson said the House Caucus has no formal position on the defined-contribution plan, but said it is expected to be called for a vote sometime today.
“Today is the last day to meet (so) a lot could still change,” he said.
The Kentucky Chamber of Commerce has been lobbying for a cash hybrid plan, which the organization says lifts the risk burden off the backs of taxpayers but is still generous to state employees.
While it still could come down to a special session to hammer out pension reform, Bryan Sunderland, vice president of public affairs for the Kentucky Chamber, said the two sides are closer than they were.
Check back for updates on this story throughout the day.