Pensions

ELLIS: Political timing may affect tax reform | Opinion

So tax reform is off the table for now, according to House Speaker Jeff Hoover, R-Jamestown.

Tax reform was previously linked to pension reform. Gov. Matt Bevin called for both during his State of the Commonwealth speech last February and the implication was the later required the former.

Everyone agrees Kentucky’s public pension systems are seriously underfunded. They don’t agree on the extent of the problem (estimates of unfunded liabilities range from $37 billion to $80 billion with most saying they probably are around $60 billion). Certainly, not everyone agrees on solutions.

Bevin has repeatedly said he’ll call a special session this fall — Hoover said this week he expects it to be in October — to address both pensions and tax reform. But from the beginning, Republican lawmakers balked at taking on the state’s antiquated tax code and they’ve apparently persuaded Bevin to separate the two, dealing first with pensions and then later turning to tax reform.

But the state’s revenue woes have only worsened since Bevin’s February call to action. So, was the decision to put off tax reform driven by practical considerations or politics? It’s probably some of both but we all know politics is the first consideration of politicians. That’s especially true for state lawmakers for whom holding on to their seats often exceeds party or ideological orthodoxy and even principle.

All 100 members of the House and half the 38 senators will be on the 2018 ballot. Republicans do not want to jeopardize their new and overwhelming control of the legislature, especially in the House which they control for the first time in nearly 100 years. There are 23 new House Republicans and neither they nor leadership wants them vulnerable in their first re-election campaigns to charges of increasing taxes.

Hoover says tax reform might be addressed in the regular 2018 session or maybe in a second special session — either before or after the regular session which convenes in January. If you’re a betting person, place your wager on after.

Again, politics is the reason. The filing deadline for those who will run for the General Assembly next year is in late January. Typically — at least when Democrats controlled the House — nothing much happens (especially on controversial bills or issues) in a 60-day session until the filing deadline passes. That allows lawmakers to see if they draw a challenger before casting tough votes which might be used against them in a campaign. First-termers are even more likely to attract challengers.

Waiting until the filing deadline passes leaves sufficient time to pass a tax reform package. But it’s also a budget session and, as Hoover rightfully observes, doing both would be a heavy lift.

A second special session prior to the regular one and the filing deadline doesn’t alter the political risks or calculations. Bevin correctly says the pension problem is greater than political considerations and he doesn’t always operate in predictable or traditional fashion. So, a special session before January shouldn’t be entirely ruled out but it seems unlikely.

I suspect the public’s sense is that while pension reform is hard, most believe the time has arrived when we must address them and lawmakers are now prepared to do it.

That’s probably right. But don’t underestimate the political difficulty, even for Republicans, in tampering with benefits, especially for teachers and city and county employees. And with or without changes to at least some benefits, there’s no clear way out of the problem without putting in more money — unless we’re willing to drastically cut funding to education and other critical services.

That brings us back to tax reform even if it’s off the table for now.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow him on Twitter @cnhifrankfort.

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