Pension systems should begin to stabilize while more meaningful tax reform still to come, Acting House Speaker Osborne says
Acting House Speaker David Osborne says the pension reform issue was “toxic from the beginning” but he feels the changes made in the 2018 session will stabilize the systems and the legislature can shift its focus to funding of the systems while tax reforms will need to continue in order to make Kentucky more competitive.
In an interview with The Bottom Line, the Acting House Speaker called the pension reforms of the 2018 session the most controversial and divisive issue he has seen in the legislature in the 12 years he has been in Frankfort and “the most difficult process I’ve ever been through.”
Osborne said he believes the pension reforms made to the Kentucky Teachers’ Retirement System (KTRS) were thoughtful to both existing and retired employees and kept the promises made to them with their employment.
He also stated he feels many individuals will like the portability that comes with the new form of retirement as they will be able to take any money in their retirement fund with them if they move or switch careers.
As for what comes next after the reforms for future hires have been made, but the state still faces around $60 billion in unfunded liability for the pension systems, Osborne said the liability has an enormous impact on the Commonwealth but it must be paid.
“Certainly, the ultimate challenge to pension reform now though is funding it. We’ve got to make sure that we continue to make that commitment to funding it. If we don’t, then we’ll end up right back in the same place,” Osborne said.
Osborne added the legislature has made a strong commitment to fund the systems which he said began with the additional $1.2 billion put toward the systems in the budget passed in the 2018 session.
“There is no amount of reforms that we can do that will alleviate the underlying issue, which is they’re underfunded,” Osborne stated.
When asked if the reforms passed in 2018 and the new funding model will help the state begin to recover from the pension crisis and no longer require any major changes to the systems, Osborne said he believes the systems have been stabilized and the reforms have put the state on a path toward long-term stability.
“As long as we remain focused. As long as the future legislators remain committed, to continuing the practice that we’ve started, and make sure that we put the money that is necessary in there, then we will grow out of this problem,” Osborne said.
On the issue of tax reform passed at the end of the 2018 session, in part to generate more revenue for the pension systems and education while also stabilizing the budget, Osborne said reforming the state’s tax code will be a long process that has now been started by easing the burden on many Kentuckians.
Osborne cited studies stating the best practice for tax reform in Kentucky and surrounding states is to broaden the consumption tax and lower the personal and corporate income taxes which he said enables a state to stop penalizing people for working and being productive.
He added it will be a long process for Kentucky to achieve the types of tax reform he would like to see and noted it has taken states like Tennessee 14 years to eliminate the state income tax and a 12-year process on tax reform in Indiana.
“We’ve got to continue to make sure we stay focused on the ultimate goal of where tax reform needs to be, which is to make Kentucky the best place in the world to build a business and raise a family,” Osborne said.
In terms of what comes next on tax reform in Kentucky, Osborne said the legislature needs to closely monitor the new reforms alongside the economic growth the state has seen in the last two years with record levels of investment stating “Kentucky’s economy is on fire.” (Discussion starting at 2:15 in the video below.)
The acting House Speaker stated because the door has now been opened on tax reform, he believes they could lose some momentum if they don’t tackle more in the 2019 session and added some taxes including the LLET tax, bank franchise tax, inheritance tax and others possibly being changed as they are current barriers to business in the state.
Osborne and other legislative leaders will be speaking about Kentucky’s tax code and reforms at the Kentucky Chamber’s State and Federal Tax Reform Summit on June 25 in Lexington. Learn more about the event and the agenda here.
Visit The Bottom Line later this week to hear Osborne’s take on the primary election results, what he expects for the elections in November, and whether or not he would like to be elected Speaker of the House in 2019.