Gov. Matt Bevin details vision for reforms to state tax code and pension systems

This from The Kentucky Chamber of Commerce Bottom Line:

Tax reform in Kentucky will have to bring in more revenue to help pay for the state’s pension crisis and tough decisions will have to be made for future hires in the state’s two largest pension plans in order to honor the promises made to the Commonwealth’s teachers and state workers, Governor Matt Bevin told The Bottom Line in an exclusive sit down interview. (Emphasis in original)

Bevin said a special session to deal with the issues is likely so that the state is not “jamming through” legislation on issues that will impact all Kentuckians.

On his vision for tax reform, Bevin said the state needs to move from more of a production-based tax economy to a consumption-based tax economy—a model which states like Tennessee and others use and could lower the burden of personal income tax on citizens of the Commonwealth.

“I am looking at [tax reform] at the highest levels. There are many ‘sacred cows’ in this state in terms of tax expenditures. All the sacred cows are going to be brought out of the barn, every single one of them. Some of them will be returned safely back to the barn as sacred cows. Some of them are going to be turned into hamburger, literally,” Bevin said.

Bevin pointed to tax exemptions as an issue within the system, stating the state exempts more income than we bring in.

The governor also stressed that he is not looking for a plan that is revenue-neutral, seeing some opportunities where the state can take in more money.

“I truly believe we can lower the overall effective rate by broadening it, making it more uniform, having fewer loopholes. And the net result of it will be a more fair, more simple, more well-received and lower effective tax rate for which people will be grateful,” Bevin said (at 1:30 in the interview below). “Plus, we will actually have more revenue, which we need.”

Bevin tied tax reform and the state’s pension crisis together with the need for more revenue in the state.
“We must bring in more revenue. To think otherwise is to delude ourselves and to continue to kick a problem down the road that has been done for a long time, and I am not going to do it,” Bevin said.

In terms of what comes next for reforming the state’s pension systems, Bevin told The Bottom Line that Kentucky’s pension problem is far bigger than we have even thought and some serious decisions are going to have to be made (discussed at 4:00).

On his vision for pension reform, Bevin said people currently in the state’s two largest retirement systems are owed what they have been promised and we must find a way to fulfill that.

“Now truth be told, a promise, inviolable or otherwise, is of no value if there is no money,” Bevin said (at 5:30). “So we have to make sure the money is there. But I firmly believe we ought to comply with what has been obligated to people.”

To ensure the money is there to pay what is owed to people currently in the Kentucky Retirement System (KRS) and the Kentucky Teachers Retirement System (KTRS), Bevin said that which has not been promised in an inviolable contract will have to be looked at and reformed and a system for new hires will have to be vastly different in order to keep the pension systems afloat.

“The net result of that is probably going to be something more like a 401k type, defined contribution type, with matching, with the ability to be portable. And that’s in line with what’s happening everywhere else in the real world, and frankly it’s what will have to happen,” Bevin said.

Both KRS and KTRS will be reformed in a special session, Bevin said, as each system finds itself in dire circumstances.

For the teacher’s pension system, the governor noted that Kentucky’s teachers currently do not receive social security and that will have to be changed in order to make changes to the structure of pension benefits. 

“It would be unfair and unreasonable change that system for teachers in Kentucky now until they are able to get that arm that’s currently tied behind their back out,” Bevin said (at 7:00). “And so, I am working right now with the federal government to see what we can do to ensure that they would be able to participate in social security. We have to do that first. It would not be fair to take away something while they don’t even have something that others have.”

As for the Kentucky Retirement System, Bevin said it will have to be reformed again as well as he feels the changes made to the system four years ago to put new hires in a “hybrid” plan instead of a full pension did not go far enough.