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Tweaks could revive proposed deal on Ky. pensions

Roger Alford, Associated Press

FRANKFORT, Ky. (AP) -- Kentucky House Democrats offered a proposal Monday that would soften cuts to roads and bridges in a complicated proposal to shore up pension plans for government retirees.

Gov. Steve Beshear had pitched the idea of making several changes to the tax code to generate about $110 million a year in funding for the pension system.

His proposal would eliminate a personal income tax credit for Kentuckians, which would generate some $65 million a year. To offset that revenue increase, the proposal called for lawmakers to roll back the gas tax by 2 cents per gallon, cutting revenue by $61 million a year that would go the Road Fund.

That was particularly objectionable to many rural Democrats who are continuously pressing for new and improved highways and bridges.

House Speaker Greg Stumbo said the latest proposal offered by House Democrats would roll back the gas tax by a penny rather than 2 cents per gallon. The Senate hasn't yet responded to that proposal.

"Obviously everybody tried hard," Stumbo told reporters late Monday night. "I don't know if we're going to get a pension bill passed or not."

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. Both 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 called for increasing a standard income tax deduction by $125, which would cost the General Fund $7 million a year.

The latest proposal also would create a trade-in tax credit for people buying new vehicles.

The governor's proposal contains numerous other tax code tweaks that would generate another $52 million. Combined they would have produced about $110 million that the state could use to make its required annual contributions to the pension systems.

Senate Floor Leader Damon Thayer, R-Georgetown, said GOP lawmakers are willing to continue working on the pension issue through Tuesday, the final day of the legislative session. But he said last-minute negotiations will be tough.

"It's very difficult at the last minute to consider changes to a very complex issue," Thayer said.

Stumbo said failure to get a pension bill passed on Tuesday would set the stage for a possible special legislative session, which would cost taxpayers about $60,000 a day.

The Senate has been insisting on a 401(k)-like retirement plan for new employees — a move the House has decided to take a vote on. Beshear kept that in his overall proposal, despite strong opposition from members of his own party and employee groups.

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 try to resolve the pension problem.

"Everybody's put in a good-faith effort to try to come to some conclusion that we can all buy into," Beshear said. "Obviously on a big issue like this, you're never going to get everything you like. I mean, that's just not possible. So you've got to be able to try to give and take and try to come up with something that everybody can live with."

The House proposal would have used proceeds from a proposed Keno game and an assortment of online games to generate pension funding. It also would have taken tax revenue from bets on slot-like devices called Instant Racing machines at horse tracks 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.