Beshear tells lawmakers state needs tax overhaul

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Associated Press

Posted on February 7, 2013 at 11:01 AM

Updated Thursday, Feb 7 at 11:01 AM

FRANKFORT, Ky. (AP) — Gov. Steve Beshear made his case for overhauling Kentucky's tax structure on Wednesday, calling on the state's leaders to stop putting off uncomfortable decisions.

In his annual State of the Commonwealth speech to a joint session of the House and Senate, Beshear said massive budget cuts over the past five years have hurt key government programs and that additional revenue is needed to undo the damage.

"We will not be able to invest in critical areas like job training and education, nor solve monstrous problems like pension liabilities, unless we think strategically and act aggressively and courageously," the Democratic governor said.

Beshear said Kentucky has commissioned 12 studies of its tax system since 1982, all of which concluded that changes are needed.

"Kentucky's tax code works against us, not for us," Beshear said. "We need a tax structure that's fair to all of our citizens and easy to understand, that helps recruit business, not drive it away, and that, because it's aligned with a 21st century economy, is able to bring in the revenue we need to fund critical services."

Beshear made clear that he doesn't necessarily expect the work to be completed in the current legislative session, which ends next month. He has already said he may call a special session later to complete the work.

"There's not a lot of time, and so the agenda I'm setting forth tonight is not only for this short session but also for the year ahead," he said.

Kentucky was hit hard in recent years by an economic recession that has forced Beshear and lawmakers to cut the state budget by some $1.6 billion since 2008. That meant cuts of up to 38 percent for some government agencies, and those cuts remain in effect.

Beshear said the financial woes have negatively affected a broad range of government services, including public schools, universities, health departments, and social services for the elderly.

A group of experts serving on a commission appointed by Beshear last year proposed a list of tax reforms that would generate nearly $700 million a year in additional revenue for the cash-strapped state. Beshear wants lawmakers to use those recommendations in developing tax legislation.

"Some say we don't need to do anything, because a growing economy and the accompanying revenue will be enough to both pay the bills and create a stronger Kentucky," Beshear said. "My friends, with all due respect, that is simply not reality, and the math shows it. Yes, the economy and our revenues are projected to grow, but not fast enough to even keep up with expenses, much less to address fundamental weaknesses."

Beshear said lawmakers need to adopt a tax structure that would strengthen Kentucky's ability to compete with other states to attract and retain jobs while at the same time generating revenue to help restore solvency to the state's pension system for government retirees. Beshear said he wants lawmakers to pass legislation to fully fund the state's contribution to the pension system, which eventually could erase a $33 billion unfunded liability.

"We have to stop putting off uncomfortable decisions for future generations," he said. "We have to stop pretending that these problems aren't holding us back, because they are."

Some Republicans, including Rep. David Floyd of Bardstown, interpreted Beshear's comments about tax reform to mean he wants to raise taxes on Kentuckians during a time of slow economic recovery.

"You can't talk about tax reform at one moment and then the need for more increases (in) revenue in the next without confessing that you're pushing tax increases," he said.

Sen. Robin Webb, D-Grayson, said the proposals to revamp the tax code and shore up pensions are major undertakings that would likely require more time than lawmakers have left in the current legislative session.

"It wouldn't surprise me if we had to have a special session to come back and deal with that," she said. "I don't know if the political will is there until you get a package.

Beshear also called on lawmakers to "tweak" a year-old state law that cracked down on prescription painkiller abuse. The law had some unintended consequences that made it more difficult for some elderly patients to get their medicines. Beshear was emphatic that he's willing to accept only minor changes.

"We are not going to backtrack," he said. "Our families are suffering too much."

The new law has led to the closure of nearly half of the state's pain management clinics and has dramatically increased the number of doctors using the state's prescription drug monitoring system.

Beshear also called on lawmakers to pass legislation that would incrementally raise the dropout age from 16 to 18.

"We must keep our teenagers in school," he said. "In Kentucky alone, 6,000 students drop out every year. They are more likely to be unemployed, to earn significantly less money when they do find work, and to find themselves on welfare or in prison. Every Kentucky school district now has alternative and support programs available for students at risk of dropping out. We just have to keep them in school to take advantage of those programs.

In the speech, Beshear urged passage of bills to strengthen the state's booster seat law, to toughen the penalty for texting while driving and to crack down on sexual predators. He also called on lawmakers to pass legislation enabling perinatal care and newborn screening for drug addiction and withdrawal.

"This is a horrendous and worsening problem," Beshear said. "In 2000, reports showed 29 babies in Kentucky born addicted to drugs. But in 2011, there were 730 babies, more than 25 times as many. And that figure is thought to be underreported. My friends, the image of an innocent baby born into this world suffering drug withdrawal is almost too horrible to visualize. Let it inspire us to act now."

Before closing the speech, Beshear urged lawmakers to work together regardless of party.

"No matter what our political affiliation, we want the same things: Good jobs with respectable pay, rigorous schools, safe neighborhoods, economic opportunity for our children, accessible and affordable health care," he said.

"The takeaway is that people don't oppose all government," he said. "They oppose bad government, wasteful government, out-of-control government, inefficient government, unethical government."

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