FRANKFORT — As the final minutes of the 2013 General Assembly ticked away, Gov. Steve Beshear and House Speaker Greg Stumbo, D-Prestonsburg, worked feverishly to come up with a compromise on a pension fix that House Democrats could support.
Originally, Beshear proposed one which would have capped an automatic increase in the sales tax in the next budget cycle two cents below its scheduled rise and then recover that money in the General Fund by closing a standard $125 deduction in personal income taxes, eliminating a $20 personal credit and making some other technical changes to tax laws.
In all, the series of changes would have produced about $110 million in Fiscal Year 2014 and about $114 million in FY 2015.
The plan would have also retained the hybrid, cash balance plan for new employees that the Republican Senate passed but that the Democratic House at first refused to accept.
But the alternative plan, based on the gas tax, wouldn’t fly with the House Democrats and was harshly criticized by the Kentucky Education Association and Public Employee Pension Coalition. Representatives of both said they could not accept the hybrid, cash balance plan for new employees and both groups said they were locked out of negotiations on Beshear’s proposal.
And they let their state representatives in the House know about it.
Beshear met with the Democratic caucus Monday afternoon for just over two hours, trying to sell them the plan, but he didn’t seem hopeful when he emerged.
“We’re talking with the House and the Senate about a possible proposal to resolve the pension crisis and at the same time provide some funding for it,” Beshear said in the hallway after exiting the closed-door meeting with House Democrats.
“There are still some moving parts but I still have hope that before tomorrow at midnight we’ll be able to come to some sort of conclusion,” Beshear said.
When Stumbo emerged an hour later, he said there was no agreement because House Democrats were “adamant about protecting the road fund, making sure our public employees, particularly the lower-paid employees, are fairly compensated after their working lives are over.
“But, no, we do not have at this point an agreement.”
So Stumbo again huddled with Beshear and again met with his caucus.
The latest plan would reduce the amount taken from the gas tax to 1-cent and implement a tax change to allow new car purchasers to reduce the amount of the purchase on which they owe sales tax by the amount of the trade-in value of their old car.
If that’s not complicated enough, Stumbo said the governor will try to restore most of the money taken from the road fund.
Stumbo said the changes are expected to generate about $110 million but estimates are only $100 million is needed for the pension plan. Beshear would use the surplus to restore “most of the road fund money,” Stumbo said.
The reason for doing that, Stumbo explained, is to offer taxpayers a “cut” in the gas tax to offset the increased taxes in the General Fund, allowing lawmakers and the governor to proclaim the plan “revenue neutral.”
Stumbo also said the House preferred to move Tuesday, the last scheduled day of the 2013 session, to Wednesday to give time for the two separate pension bills to be written.
But the Senate refused to go along and Majority Floor Leader Damon Thayer, R-Georgetown, announced moments later on the Senate floor that it would reconvene Tuesday at 9 a.m.
Public employee representatives weren’t happy.
Sharron Oxendine, president of the KEA, and Steve Barger of the Public Employee Pension Coalition earlier had welcomed news House Democrats refused to go along with the first Beshear proposal. Both said they oppose the cash balance plan for new hires and they aren’t happy they were left out of negotiations.
But when Stumbo emerged from the second Democratic caucus around 9:15 p.m. EDT Monday and announced the new funding plan had “around 35 members” who, along with the House Republicans, would be enough combined to pass the measure, Oxendine watched unhappily from a few feet away.
Stumbo said Democrats were free to vote their conscience on the non-funding, reform package which includes the cash balance plan for new employees. Oxendine later said Stumbo and House leadership wouldn’t have ended the meeting “without enough votes to pass it.”
But she promised to remember those Democrats who do vote for it.
“I will commit them to memory and I’ll climb up on the Capitol Dome and shout them out,” Oxendine said.
It was also not known if the latest plan and smaller reduction in the gas tax would calm objections by local officials. Part of the money generated by the tax goes to counties and cities for local road needs, money most fiscal courts and city governments count on each year.
Earlier in the day when the original 2-cent reduction became known, Vince Lang, executive director of the Kentucky Judge/Executives Association, said county officials weren’t happy, noting local officials – unlike the legislature – had always made a full payment into the pension system.
“It’s not right to take money we would have been getting in the gas tax increase and punishing the same people who have always paid their fair share into the pension system,” Lang said.
While the pension resolution didn’t seem in sight by 10 p.m. Monday, it did seem likely both chambers would override Beshear’s veto of House Bill 279, the so-called religious freedom bill.
Stumbo said he will call the measure up for a vote on an override.
The measure would allow some with “deeply held religious beliefs” to disregard some state laws which conflicted with those beliefs unless there is “clear and compelling evidence of a compelling state interest.”
Critics claim the measure might make it difficult to enforce non-discrimination laws and ordinances, but the measure passed both chambers by wide margins and will likely receive more than enough votes to override Beshear’s veto.
RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at email@example.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.