The Richmond Register

March 29, 2013

Getting to bottom of explaining ‘revenue neutral’

By Ronnie Ellis
CNHI News Service

FRANKFORT — You would think three men smart enough to get themselves elected governor, speaker of the house and president of the senate could answer a simple question.

“How can a measure which produces $100 million in new revenue be revenue neutral?”

See, the funding plan to finance annual payments for the reformed pension plan reduces some taxes while increasing others, “revenue neutral,” according to Gov. Steve Beshear, Speaker Greg Stumbo and Senate President Robert Stivers.

But the plan increases state revenues by somewhere between $90 million and $100 million. The biggest tax cut, it seems, can be utilized only by those who purchase a new car while trading in an old vehicle.

The real “cuts” are cuts in tax credits and deductions for personal income – uh, that means many of you will pay MORE, not less.

As The Courier-Journal’s Mike Wynn put it to Beshear at a hastily called press conference after the pension bill passed: “Isn’t this a tax increase for everyone except someone buying a new car?”

Wynn fared no better than the rest of us. Beshear responded by talking about some changes in technical and compliance tax laws that happened to match recommendations of the now nearly forgotten Blue Ribbon Commission on Tax Reform. But he did not directly answer Wynn’s question.

The governor and legislators were wise to specify funding sources for the increased pension contributions (they had to increase them because for so many years they didn’t pay the bill for benefits they’d created).

The pension reform itself – placing new hires into a half defined benefit, half hybrid cash balance plan – seems a reasonable compromise. At the same time, I understand public employee groups’ displeasure. After all, unlike the legislature and the budgets offered by the last three governors, the employees had made their full contributions into the system.

Nevertheless it is the sort of political compromise that characterizes effective government and as Beshear, Stumbo and Stivers proudly trumpeted, it shows bipartisanship.

But it ain’t revenue neutral.

I don’t object to the new money. We get what we pay for. Given the need to spend more on education and human services, it seems the right and prudent thing to do. I just think politicians should talk straight to the public.

Reporters asked all three men how a measure that raises close to $100 million the state didn’t have before the bill passed could be “revenue neutral” – and we never got an answer.

I finally put it this way to Stivers: “By definition, by logic, by basic math – how can you say something is revenue neutral when it raises $100 million which we didn’t have before you passed the bill?”

Stivers’ response was (slightly) less evasive than Beshear’s or Stumbo’s. He said it was “tax rate neutral” because it reduced rates for some while balancing those reductions with the income tax deduction and credit reductions. At least he didn’t try again to claim it was revenue neutral.

Look, Beshear and legislators should be commended for overcoming partisan differences and genuine philosophical differences to address a serious problem.

Such compromise always contains things hard to swallow by all sides, and it shows Kentucky’s policy makers really can work together to deal with issues confronting the state.

Stumbo and Stivers correctly praised Beshear’s involvement and persistence. Beshear and Stumbo praised Stivers for the improved tone in the Senate. Stumbo’s political and negotiating skills managed to goad the Senate into agreeing to a funding plan while managing its passage by reluctant House Democrats.

All three men deserve credit. But a simple question deserves a simple, direct and honest answer.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.