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House looking at increasing cigarette taxes for pension fix

February 12, 2013 | | Comments 3

By Beth Musgrave and Jack Brammer
bmusgrave@herald-leader.com
jbrammer@herald-leader.com

FRANKFORT — House Speaker Greg Stumbo said Tuesday that a 40 cent increase in the tax on a pack of cigarettes is one of many options the Democratic House is considering to fund the state’s ailing pension fund.

The increase would bring state cigarette taxes to $1 a pack, which is still lower than most neighboring states, Stumbo said. Raising taxes on cigarettes and other tobacco products would generate the $100 million in General Fund dollars needed by July 1, 2014, to fully fund the pension system, he said.

Stumbo, D-Prestonsburg, declined to name other options House Democrats are considering, but said he hopes to have those options ready for the Democratic caucus to possibly vote on during a meeting on Wednesday.

“It’s going to be part of the general discussion on where the members want to go,” Stumbo said of the cigarette tax.

The House has not yet taken any action on proposals to overhaul the state’s pension system for most public workers.

Last week, the Senate passed its version of a pension bill that included the recommendations of a task force convened to look at the state’s ailing pension system this summer. The pension system has roughly half the money it needs to pay all current and future retirees.

Senate Bill 2 would strike cost-of-living increases for current retirees and move new employees to a hybrid 401(k)-style plan that offers a guaranteed rate of return on investments.

A group representing unions and retirees blasted the Senate on Monday for voting on the bill before seeing an actuarial analysis by the Kentucky State Retirement System’s that showed the hybrid plan might cost more than continuing the existing defined-benefit pension system.

Democrats have also expressed concerns that SB 2 does not say how the state should find additional money to fully fund the pension system.

The system needs an additional $300 million in new funding beginning next fiscal year, but only about $100 million of that is for state employees whose salaries are paid for with state General Fund dollars.

Senate Republicans have said a decision on where the additional money should come from can be made in 2014, when the legislature approves a two-year budget.

Senate President Robert Stivers, R-Manchester, said Tuesday he believes the funding could come from natural growth in state revenue as the economy picks up.

He noted that House Democrats would need support from Several Republicans to reach the 60 votes needed to approve a cigarette tax increase in the current legislative session. Tax issues in short, or 30-day, legislative sessions require three-fifths of a chamber’s vote to pass.

Stivers also said a cigarette tax hike is not a reliable funding source. When more smokers quit because of the tax increase, revenue will decline, he said.

But Stumbo said that revenue figures show after a cigarette tax increase that revenues decline slightly but will eventually level off to about $100 million a year.

Filed Under: Greg StumboKY General AssemblyRobert StiversState Government

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  1. John says:

    A 40 cent increase will generate $100 million in additional state dollars… by July??

    This is a no-brainer… do it now!

  2. Jim Carroll says:

    $100 million would not fully fund the pension system, and the state does not have half the amount it needs to pay current and future employees. The discussion in Frankfort is fully funding the actuarially required contribution (the ARC). The pension system has huge long-term liabilities, so fully funding the ARC will just start the process of paying down the liabilities.

  3. Barbara says:

    I do not suppoert HB2. Do not take our COLA. And, you will not have any revenue,
    if you do not get some from future employee’s.
    Raise the taxes on alchol.
    That should really raise the amount of money needed. The Lottery takes in a lot. Raise the state sales tax, a 1/2 cent. Fair way, everyone helps pay, that way, on top of what I(WE)Retiree’s have already paided, and our Employeer’s.
    There are ways of raising the money without taking away from us that are already retired. The way I see it, you are not giving us anything, You used our money for other things.