FRANKFORT, Ky. (AP) -- Legislative leaders are working on a potential deal that would eliminate a standard $20 personal income tax credit for Kentuckians in a move that could generate some $65 million a year to shore up the financially troubled pension system for government retirees.
Gov. Steve Beshear was expected to personally brief House Democrats on the proposal in a private meeting Monday afternoon.
"We'll see what the reaction is," House Speaker Greg Stumbo told reporters.
Restoring solvency to the pension system, which has a $33 billion unfunded liability, has been divisive for the Republican-controlled Senate and the Democratic-led House, which have been working on the issue since the Legislature convened in January.
Eliminating the $20 personal income tax credit was only one of a series of tweaks included in the proposal. It also calls for increasing a standard income tax deduction by $125, which would cost the General Fund $7 million a year.
To offset the increase in General Fund revenue, the proposal calls for lawmakers to roll back the gas tax by 2 cents, reducing Road Fund revenue by $61 million a year.
The proposal contains numerous other tax code tweaks that would generate another $52 million. Combined they would produce about $110 million that the state can use to make its required annual contributions to the pension systems.
The Senate has been insisting on a 401(k)-like retirement plan for new employees — a move the House opposes. That provision would remain a part of the overall proposal, despite strong opposition from employee groups.
The House had pushed a plan that would use money from the lottery and horse tracks to generate more money for pensions. The latest proposal calls for diverting revenue from the Road Fund to pensions, a move that Stumbo said he has reservations about.
Lawmakers returned to the Capitol on Monday to try to complete efforts to shore up pensions. They have until midnight Tuesday to finish the work.
Beshear has been meeting with lawmakers over the past two weeks to find a way to resolve the pension problem.
The House had proposed a measure that would require the state lottery to add Keno and new online games to generate revenue for the pensions. House Democrats also called for tax revenue from slot-like devices called Instant Racing machines at horse tracks to be designated for pensions. Stumbo had said previously that those options could net $100 million a year, roughly the amount of additional money Kentucky needs to make its annual pension contribution.
In Kentucky, actual slots are banned, but two horse tracks have installed the Instant Racing machines. Players wager on the outcomes of past horse races, without knowing who won. The machines spawned a legal challenge that is pending before the Kentucky Supreme Court.