Financial crisis will bring frightening realities in 2018, legislative leaders tell business community

Less than two weeks before legislators are called back to Frankfort for the 2018 session, legislative leaders painted a bleak picture Tuesday at the Kentucky Chamber’s 2018 Legislative Preview Conference when discussing the fact pension reforms are still casting a dark shadow over progress in the upcoming budget session which will cause cuts across all areas of state government to keep the retirement systems afloat.

The panel, featuring Senate President Robert Stivers, Senate Majority Leader Damon Thayer, Acting House Speaker David Osborne, and House Majority Leader Jonathan Shell and moderated by Kentucky Chamber President and CEO Dave Adkisson, laid out the unfortunate options legislators will face in the 2018 session and what could get done and won’t be possible in the 60-day session as pension reforms have still not been tackled in a special session as most expected.

Stivers said the legislature is at a point where when the session begins, lawmakers can react quickly to pension reforms in the first couple weeks of the session. Osborne added the process is substantially complete and feels they will be ready in early 2018.

In terms of how significant pension reforms will have to be, Stivers said a one or two on a ten point scale is not acceptable as the state faces major issues across the board and if it is not addressed more cuts or tax increases will be required. Thayer said the plan they hope to introduce soon will be a good bill with the focus of fixing the systems for the future by putting new employees in a new system along with a few changes which are outside of the inviolable contract so that the cuts won’t have to be as severe as many expect.

Osborne said level-dollar funding for the pension systems moving forward is essential to ensure the systems are sustainable moving forward. Leader Shell added because of that decision, any plan passed is going to cost the state more money in the immediate future but will help move the systems forward.

On the budget, Senate Leader Thayer said “you have to go where the money is” when it comes to cuts in the next two-year budget and added it is likely all areas of government will see cuts, including K-12 education and post-secondary as education takes up almost 60% of the state budget.

The new House Speaker said he feels many are underestimating the “financial crisis” the state is in. Osborne continued by saying pensions will have to be dealt with first and then legislators will evaluate how deep the hole in terms of funding shortages. House Leader Shell said the decisions the legislature will have to make are very real and impact each person in the state.

In terms of when they can complete the budget, the leaders said they expect the budget process to go differently in the coming year as the Republicans now control the House, Senate, and governor’s office for the first time and said they hope the budget will not wait until the last hours of the last days of the session.

As the state faces revenue shortfalls and increased funding needs, Stivers said the state’s tax code needs modernization but that doesn’t necessarily mean it has to mean a tax increase. Thayer said he doesn’t believe the General Assembly will get to tax reform in the 2018 session as it has to be comprehensive and said the state can’t “tax, smoke, or gamble our way out of the pension crisis.”

Similar to what he told The Bottom Line in an exclusive interview, Osborne said the state has to look at what it wants tax reform to be before tackling the very difficult issue.

Shell added that while there are many freshman members of the legislature that have not been through these processes yet, they are willing to vote on difficult issues like the big three: budget, pensions, and taxes.

As for other priorities, the leaders again pointed to legislation dealing with essential skills, workers’ compensation system reforms, peer review, and justice reforms as areas of key focus for both legislative chambers in 2018.