Al Cross

Contributing Columnist

FRANKFORT, Ky. – Gov. Matt Bevin told Kentuckians many things that needed to be said when he gave his State of the Commonwealth speech to the General Assembly as it returned for work this month. But just as he spoke without a prepared text, he also spoke without political preparation.

Here’s what he said that needed saying:

The long-term unfunded liabilities of the state’s pension systems are a lot more than has been estimated, tens of billions of dollars more.

The state will need more tax revenue to save the pensions, and some of our many tax exemptions will have to be reduced or repealed – turning “sacred cows” into hamburger, as Bevin’s most memorable line had it.

The governor also said the state needs to move toward a tax system that is based more on consumption (sales taxes) than on production (income taxes).

Bevin thus essentially called for comprehensive tax reform, something our state has needed for 30 years – and which has always been thwarted by the lobbying and political contributions of those who have sacred cows to protect.

Bevin, a Republican elected mainly with his own money, has fewer political obligations. And the pension crisis means that he can take the advice of Rahm Emanuel, Chicago’s Democratic mayor, who said when he was preparing to become Barack Obama’s White House chief of staff as the economy tanked: “You never want a serious crisis to go to waste.”

Bevin said he plans to call a single legislative session to deal with pensions and taxes, not two separate sessions, as many legislators expected.

That makes political sense, because tax reform for the sake of tax reform is a proven loser in this state, especially with a legislature that has so many inexperienced members – including so many Republicans, whose supporters last November clearly didn’t expect them to raise taxes.

“It will not make you popular with everybody,” Bevin told them, in a gross understatement. “We have got to make bold, hard decisions.”

True enough. But the two people who will be the most important to Bevin’s agenda apparently didn’t know what he was going to say, and their response was underwhelming.

House Speaker Jeff Hoover said on KET just after the speech, “We’ll have to wait and see what the proposal is. ... We want to be fiscally responsible, and members want buy-in.”

There was no apparent buy-in from Senate President Robert Stivers, who said to reporters, “How do you define, exactly, more revenue? Is it a particular increase in taxes or is it expanding the base by doing different things?”

Remember, Stivers and Hoover are Republicans, just like Bevin. But as experienced legislative leaders, they are professional politicians, and you can’t say that of Bevin yet. A pro would have clued in the leaders and given them time to craft statements that would have been more supportive while still being noncommittal.

There’s still time to build legislative and public support for a taxes-and-pensions plan before a special session, which Bevin has indicated he would call this fall. Still, it’s never too early to start on issues that are this complicated.

The governor actually won applause from legislators when he delivered his cows-into-hamburger line and said: “I’m gonna need your help to make it happen.”

But Democratic Rep. Rick Rand of Bedford, who was ousted as chair of the House Appropriations and Revenue Committee by November’s Republican takeover, later gave fair warning, via the Lexington Herald-Leader: “This is a relationship business, and the governor’s really not built any relationship with any of us standing up here. He hasn’t reached out on anything. Either he doesn’t need us, or he has another way he thinks he can pass a bill like that.”

Bevin can be a persuasive salesman, is highly intelligent, and has probably learned not to play as rough as he did when trying to get Democratic legislators to switch parties soon after he was elected in 2015. He is a successful businessman who has broken political molds, but legislators’ experience tells them that every governor wants more money to meet needs, get re-elected and leave a legacy.

Bevin said in his speech that if the pension system’s investments get the same return as 30-year U.S. Treasury notes, “not these hypothetical numbers that we haven’t been getting and are not gonna get, we don’t have a 30- or 36- or 38-billion-dollar pension problem. We have an 82-billion-dollar pension problem.”

John Farris, an economist whom Bevin appointed chairman of the Kentucky Retirement Systems, told the board Thursday that 30-year Treasury bills are paying about 3 percent. Chris Tobe, a former board member who outspokenly raised questions about management several years ago, says a better estimate is 4.2 percent, the figure that the Teachers Retirement System’s consulting actuaries estimated in June, following the conservative rules of the Governmental Accounting Standards Board.

The teachers’ system has been doing better lately, and this year could exceed the 7.5 percent target for the entire system. But other parts of the system are not performing as well, so Bevin’s estimate is much closer to the mark. However, when he low-balls the expected return at 3 percent, that high-balls the unfunded liability – and the taxes needed to fund it.

The more up-front Bevin is with legislators and the public, the more buy-in he is likely to get, but if he oversells his case, lawmakers and voters are less likely to buy it. The outcome is likely to be this governor’s biggest legacy.

Al Cross, a former CJ political writer, is director of the Institute for Rural Journalism and Community Issues and associate professor in the University of Kentucky School of Journalism and Media. His opinions are his own, not UK's.