By Jack Brammer
FRANKFORT — Democrats on a House committee made major changes Tuesday to a proposed overhaul of Kentucky’s ailing pension system, raising the hackles of Republicans.
The House State Government Committee sent a revised Senate Bill 2 to the full House for consideration on a 17-1 vote. Ten Republicans did not vote.
The latest version of SB 2 would allow future state workers to remain on a defined-benefit pension plan. Senate Republicans has proposed shifting future workers to a hybrid 401(K)-style plan that offered a defined contribution from the state and a guaranteed minimum return on investments.
Committee Chairman Brent Yonts, D-Greenville, said House Speaker Greg Stumbo will present a plan to pay for the policy bill to the House budget committee later in the day.
Stumbo has said the funding plan would rely on money from expanded Instant Racing at horse racetracks, a new Keno game operated by the Kentucky Lottery Corp. and allowing lottery games to be played online.
The Senate, which approved its version of SB 2 earlier this month, did not adopt a funding plan to pay for pension reforms, saying the issue could be addressed next year when the legislature takes up the two-year state budget.
Yonts said the full House may vote Wednesday on the pension policy and funding bills.
Several Republican members of the House State Government Committee grumbled that they had only minutes to review the House committee substitute to SB 2 and that it contained no actuarial analysis.
They also said the GOP-led Senate’s bill was based on a bipartisan task force created last year to come up with recommendations on the pension problems.
Yonts countered that he has never seen the legislature completely adopt a task force’s report.
The House version makes several changes to SB 2, including:
■ Allowing the General Assembly to amend the employee contribution rate for future state workers, subject to approval by a new 11-member Public Pension Oversight Board.
■ Allowing cost of living adjustments for retired members if the oversight board determines funds are available and the General Assembly enacts legislation to provide them or if the General Assembly pre-funds the adjustments. The Senate’s version of the bill did not offer cost of living adjustments.
Leaders of Kentucky’s horse industry also may take issue with Stumbo’s plan to help fund the pension system with tax revenue from instant racing, which allows people to bet electronically on historical races using slots-like machines.
Stumbo said his plan could generate more than $100 million a year for the pension system within three to five years, which is how long he estimated it might take for more racetracks to implement instant racing, and for the Kentucky Lottery to implement Keno and online lottery sales.
But racetracks have been reluctant to add instant racing machines until the state courts have ruled on its legality. Keeneland has said plans for a new Quarter Horse racetrack near Corbin are conditioned, at least in part, on the Kentucky Supreme Court upholding instant racing or the General Assembly passing legislation filed earlier this month to resolve questions about the legality of instant racing.
Stumbo said he House would not proceed with instant racing legislation this year because he believes the courts will find the games legal, although a final ruling could take years.
In comments late Monday, Stumbo told reporters his plan would not alter how the state taxes the first $300 million gambled on instant racing each year. After the $300 million threshold is reached, the state’s 1.5 percent pari-mutuel tax would be earmarked for the state’s pension plan.
On the first $300 million, the pari-mutuel tax would continue to be divided between the state General Fund, the Kentucky Thoroughbred Development Fund a variety of equine research projects. The General Fund gets 0.35 percent of the total wagered, leaving 0.75 percent for the development fund and 0.4 percent for research efforts.
Currently, bettors wage about $20 million a month on instant racing at tracks in Franklin and Henderson, which falls well short of Stumbo’s $300 million annual threshold.
Instant racing was initiated by the Kentucky Horse Racing Commission as a way for racetracks to boost purses and generate revenue without other forms of gambling.
David Switzer, executive director of the Kentucky Thoroughbred Association, pointed out that limiting the Kentucky Thoroughbred Development Fund to $2.25 million a year wouldn’t give them much to work with.
The fund used to collect about $10 million a year to boost purses, but competition from other states has driven Kentucky racing revenue down and cut the fund to about $5 million.
“Now if they’re going to cap it at $2.25 million … we have to figure out another way to bring that up,” Switzer said.