There is no team that holds a position closer to the heart of many University of Kentucky basketball fans than the 1991-92 team dubbed “The Unforgettables.” Post-season eligible for the first time since the sanctions of Eddie Sutton era, the team was led by four, mostly homegrown, seniors and future All-American Jamal Mashburn. Even though they ultimately lost in the Elite Eight, the team symbolized a return to national prominence for the program.
As it relates to Kentucky state policy, 2017 could be thought of similarly. In the previous legislative session, and throughout the year that followed, our state saw remarkable policy changes, and almost immediately began reaping the rewards. As the cover story of The Lane Report noted in December, pro-growth policies and the leadership of Gov. Matt Bevin helped Kentucky experience a record $9.2 billion in corporate investment, equaling a remarkable 17,000 new jobs.
It isn’t time to raise championship banners yet, though. Major policy needs still remain, and at the outset of another legislative session, it might be more important than ever before that lawmakers ignore distractions and focus on tackling the fundamental issues that still beleaguer our state.
The three most significant are easy to name but difficult to solve.
Distractions and complications, centralized in one legislative chamber, prevented a special session that would have addressed Kentucky’s pension system. The system remains more than $40 billion underfunded and is, by many measures, the worst funded pension system in the United States. Without changes, the account covering state employees in non-hazardous roles, will be completely out of money by 2022.
So far, businesses have remained willing to continue investing in Kentucky with the confidence that we will fix this problem, and not require them to ultimately shoulder the burden. That will undoubtedly change if we don’t make changes, risking a halt in corporate investment momentum and costing the state opportunities to grow.
From bond ratings to education spending, the pension crisis has widespread impacts on the commonwealth. This year’s state budget, the second of the three major policy challenges that must be addressed this year, will be the first budget that forces the state to deal with the two decades of malfeasance on pensions.
According to State Budget Director John Chilton, “to be fiscally responsible, we need to free up an additional $1 billion,” to adequately address pension system needs, representing nearly 10 percent of the state’s overall budget.
If innovation is the mother of necessity, virtually every aspect of Kentucky’s state government will be tasked with finding more efficient, less costly ways to deliver services. This year’s budget, which will be the first under a unified Republican legislature and governor, will provide the first real opportunity to cut back the size and role of government. Lawmakers should embrace the opportunity.
The final policy item is arguably most important. Kentucky’s tax code has not received a holistic overhaul since 1936. It was that year, under Gov. Happy Chandler, that Kentucky introduced its income and corporate taxes. In the decades since, the code has gotten increasingly complex and been detrimental to Kentucky’s growth as the burden of taxation has fallen increasingly onto the production side of our economy.
Since 1977 alone, Kentucky’s economy grew 30 percent below the national average, ranking it 44th in the United States. Our labor force participation rate, which has improved in the last two years, still remains in the bottom quartile nationally. Household income in the commonwealth remains approximately 18 percent below national average.
Tax reform is essential if Kentucky’s economy is going to take the next steps.
There is enormous risk that early celebrations, distractions or egos could derail the effort to tackle our biggest challenges. Caving to such temptations will come at an immeasurable cost. For the first time in virtually anyone’s memory, Kentucky appears to be turning the page and emerging as a national leader.
There is a lengthy road between “The Unforgettables” and “The Untouchables,” but we are on it. As lawmakers begin a new session, let’s hope they keep the pedal on the floor. ■