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June 2012
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PERIL Kentucky pension woes put GOP on quicksand


Illinois is back in the news in an embarrassing way. Again.

For the second year in a row Illinois risks a shutoff of utilities to state offices in Springfield. A story in last Sunday's Paducah Sun said Illinois owes $3.5 million in past-due payments to City Water, Light and Power.

At least that's better than a year ago, when the state fell $12 million behind. The state paid by way of a temporary spending measure after the utility sent notice of its intent to disconnect service.

This year's delinquency is a pittance compared to the state's total accumulation of unpaid bills. That number now stands at $14.4 billion. We genuinely wonder why anyone would do business with the Illinois government these days. No one would provide goods or services to a private sector company with this record.

The Illinois spectacle continues to be an educational backdrop for Kentucky's own financial problems. The Illinois crisis is rooted in its collapsing public employee pension fund. It is owed more than $100 billion by the state. A recent effort to simply stem the tide ended in political disaster.

Several years ago Illinois imposed sharp increases in personal and business taxes to shore up pensions. Legislators made the increase "temporary" to win passage. Predictably there was a later effort made to make it permanent. But by then the state was losing population and businesses. There was a public backlash. The tax increases expired and Democrats lost the governor's mansion. There has been political gridlock ever since. The state has operated without a budget for more than two years.

It is against this backdrop that a Kentucky pension story emerged last week. The Associated Press says consultants believe Kentucky needs to spend $700 million more per year to keep its pension funds afloat. This is on top of the $2 billion the state is scheduled to pour into the funds during the fiscal year beginning July 1.

We have praised Kentucky's Republican governor, Matt Bevin, for being the first chief executive to be honest about the severity of the pension problem -- which is neck-and-neck with Illinois as worst in the nation -- and for taking some unpopular steps to address it. We suspect the $700 million additional need posited in the consultants' report will be a launching point for a potentially much more unpopular Bevin proposal: a tax code restructuring that will raise significant new revenue.

We have a couple of thoughts about that. One is that we have for decades taken the position at the Sun that before Frankfort asks for a tax increase, it needs to demonstrate that it has cut spending as much as reasonably possible. We don't feel we have seen that.

Second, there is the political lesson of Illinois. Party matters not when one starts raising taxes. If voters decide they are being gouged, justification falls by the wayside. The result can be Illinois-style budget chaos.

The severity of Kentucky's pension problem cannot be dismissed. Something absolutely has to be done. But the easy path -- simply raising taxes -- is fraught with peril. Bevin and his GOP legislative supermajorities are unfortunately walking on political quicksand manufactured for them by decades of Democratic recklessness. Fair or not, responsibly navigating this challenge may not be possible without serious casualties.

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