OWENSBORO -- State and local officials weighed in this week on speculation about a possible special General Assembly session this fall to address Kentucky's under-funded pension programs and tax reform proposals.
Critical among those initiatives, officials agreed, is that reforms to the complicated tax code generate new state revenue, perhaps putting some popular sales exemptions on the line, including even those for prescription medications and groceries, said one legislator.
State Sen. C.B. Embry, a Morgantown Republican, briefed a gathering of Green River Area Development District county officials on Wednesday who were there to review actions already taken by the 2017 General Assembly. Embry said he has no reason to believe any specific exemptions would be targeted should a special session take place, but that there seems to be a broad consensus toward addressing the state's tax code as a whole.
With a Republican super-majority in two branches of state government, it's likely, he said, that the Department of Revenue will be approved to make another significant transfer of funds to Kentucky Retirement Systems. The state agency is down more than $18 billion in unfunded liability that the government will soon owe some 350,000 public employees. In 2014, legislators approved a $1.28 billion transfer. It was the largest single contribution that fund had ever received.
"But our pension fund is still the second worst funded in the nation," Embry said. "And we were able to make that contribution in 2014 (under Gov. Steve Beshear) by severely cutting many different agencies. It was a difficult thing to do, and (Bevin) seems prepared to do it again, while replenishing some of the areas we took from last time. Tax reform is the only way to do that, and the governor says everything is on the table."
Bevin has already voiced his support for a "consumption-based" tax system, which would shift some state reliance from income to sales taxes. Since Kentucky notably exempts prescription medications and food purchases from its 6 percent sales tax on goods, it's reasonable to assume that the General Assembly may be willing rethink that structure in a tax reform plan, Embry said.
"It will be a very difficult, controversial and probably unpopular plan," he said. "We don't know what it will look like yet, but we need to prepare for what's coming."
Republican state Reps. D.J. Johnson and Suzanne Miles, both of Owensboro, were also in attendance Wednesday. Johnson said he would favor a special session to address the pension crisis only if a third-party evaluation of the agency were complete.
Earlier this year, the KRS Board of Trustees announced that previous estimates regarding the multibillion-dollar shortfall had relied on faulty calculations that were overly generous and had painted an inaccurate picture of future losses. The board contracted an auditing firm to recalculate the liability. Johnson said he wants to evaluate their findings before coming to any concrete decisions on tax reform.
Similarly, Miles said she looks forward to the report, but she endorsed plans to update and modernize Kentucky's tax code.
"We're not going to solve this problem overnight," she said. "We made a big step in 2014, but our tax code is out of date, and we need to start fixing problems there, too."
It would be irresponsible, she said, to pick any one category of taxes -- even as broad as sales or income -- without a comprehensive review of state-generated revenue.
Only the governor can call a special session of the General Assembly, and his administration alone sets the agenda, according to constitutional law.
Shellie Hampton, director of governmental relations for the Kentucky Association of Counties, also spoke at Wednesday's meeting. Hampton recapped highlights from the most recent General Assembly session and how new laws will likely affect county governments. While she and her colleagues, she said, have outlined the need for continued state funding at the county level with members of Bevin's team, efforts on the legislative side failed this session to remove the County Employee Retirement System from the KRS board's control.
KERS, Hampton said, has been better funded at more than 60 percent and growing now. Separating the county system from the Kentucky Employee and State Police retirement systems would allow the legislature to more accurately target individual programs and funds aimed at reducing their shortfalls. Those efforts will resume, she said, during the next regular session in January 2018.