FRANKFORT — Politically secure after re-election to a second term, the Kentucky governor, who has presided over $1.6 billion in budget cuts in five years, called on lawmakers Wednesday evening to step up and tackle the state’s persistently stagnant revenue problems.
Gov. Steve Beshear came out forcefully for tax reform in his annual State of the Commonwealth speech, saying education and Kentucky’s future are at risk and nothing – not even the need to reform the state pension systems – should overshadow the necessity of finding dependable, reliable funding for education.
Beshear seemed to aim his somber, at times almost funereal speech squarely at 138 lawmakers rather than the wider electorate.
Reiterating dire warnings his cabinet secretary, Mary Lassiter, made to the legislature’s budget committees on Tuesday, Beshear said as bad as things look, “the good news is we know what we have to do.
“But delay could be deadly,” he said.
Beshear was referring to recommendations of a Blue Ribbon Commission on Tax Reform led by Lt. Gov. Jerry Abramson that offered 92 recommendations which would raise an additional $650 million to $690 million a year.
The recommendations would increase cigarette and utility taxes as well as extend sales taxes to some unspecified services. It would lower top corporate and individual tax rates while adding an individual tax bracket and reducing several business taxes. The commission also called for a lower cap on total tax deductions and for taxing retiree benefits and income above $30,000.
Beshear conceded passage of tax reform isn’t likely in the regular session, saying his agenda “is not only for this short session but also for the year ahead” – an obvious implication that he intends to call for a special session to pass tax reform.
“By the end of this session, we must have moved closer toward an agreement of both what needs to be done – and, just as important – how to pay for it,” Beshear said.
He warned lawmakers – who generally blanch at the prospect of raising any taxes – that projected revenue growth of about 3 percent is insufficient to cover one-time, stop-gap funding in the current budget and other built-in costs.
Like Lassiter the day before, Beshear said that while basic funding for public education was protected from cuts in the past five years, growing enrollment actually reduced per-pupil spending and at the same time other school programs were drastically cut.
He reminded lawmakers they reduced funding for higher education by $166 million since 2008 which has led to higher tuition, larger classes and fewer academic offerings.
Beshear recognized the need for pension reform, a major priority of the Republican Senate, and he agreed part of the problem has been the state’s failure to fully fund the system for years.
But Beshear said there was a good reason.
“I can tell you exactly why we haven’t fully funded the (annual required contribution or ARC),” Beshear said. “It would have required us to gut our most fundamental priorities: K-12 education, public safety and job creation.
“I refused to do it,” he continued. “And I refuse to do it in the years ahead. I will not allow our school children to be collateral damage.”
But he said the two issues – tax reform and pension reform – are tied and he and lawmakers must find consensus during the session “because we must find solutions this year” – again implying he is likely to call a special session on tax reform and perhaps link it to pension reform.
Democratic House Speaker Greg Stumbo generally endorsed the speech and Beshear’s emphasis on finding revenues to fund the state budget before taking on pension reform.
“I think we need to have an adult conversation,” Stumbo said. “You put your big boy pants on and talk about where the money will come from. Otherwise, it’s an unfunded mandate.” Stumbo has consistently called for a “dedicated funding source” for the pension fund.
Republican reaction was less enthusiastic.
House Minority Leader Jeff Hoover, R-Jamestown, was clearly underwhelmed. He called the speech “as predictable as the sun coming up” and said Beshear offered no specific agenda or solutions.
Senate Majority Leader Damon Thayer, R-Georgetown, who co-chaired the pension reform task force, said Beshear’s talk of “reinvestment makes me nervous” that the governor wants to “grow government again.”
And Senate President Robert Stivers, R-Manchester, was clear: the Republican Senate wants to put the “structure of pension reform” in place this year and deal with funding in next year’s budget session. He said that can be done without “exposing the taxpayer to any more liability.”
House Majority Leader Rocky Adkins, D-Sandy Hook, said Beshear provided a “good overview of the issues we need to address.”
While Adkins said lawmakers will attempt to deal with those in the 24 remaining days of the session, he said “we’re more than likely looking at a special session on some of those very complex issues.”
Beshear touched on a few other proposals, calling for “tweaks” to legislation passed last year to crack down on prescription pain killer abuse to respond to problems legitimate patients have encountered. But he promised not “to return Kentucky to the prescription playground that it was before.”
He also called for passage of a bill to raise the high school drop-out age, a proposal he’s made in the past two sessions but which has been stymied in the Republican controlled Senate.
Beshear also called for a statewide smoking ban.