Call to Order and Roll Call
The 6th meeting of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, November 29, 2012, at 1:00 PM, in Room 154 of the Capitol Annex. Senator Bob Leeper, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Bob Leeper, Co-Chair; Representative Rick Rand, Co-Chair; Senators Walter Blevins Jr., Tom Buford, Jared Carpenter, Denise Harper Angel, Ernie Harris, Ray S. Jones II, Vernie McGaha, Gerald A. Neal, R.J. Palmer II, Joey Pendleton, Brandon Smith, Jack Westwood, and Mike Wilson; Representatives Royce W. Adams, John "Bam" Carney, Ron Crimm, Mike Denham, Bob M. DeWeese, Danny Ford, Derrick Graham, Keith Hall, Richard Henderson, Jimmie Lee, Reginald Meeks, Sannie Overly, Marie Rader, Jody Richards, Steven Rudy, Sal Santoro, Arnold Simpson, Jim Stewart III, Tommy Turner, Jim Wayne, and Brent Yonts.
Guests: Mr. Thomas B. Miller, Commissioner, Department of Revenue; Representative Mike Cherry, Co-Chair, Kentucky Public Pensions Task Force; Mr. David Draine, Senior Researcher, Pew Center on the States.
LRC Staff: John Scott, Charlotte Quarles, Eric Kennedy, Jennifer Hays, and Sheri Mahan.
Representative Yonts moved that the minutes from the previous meeting be approved as written. The motion was seconded by Representative Simpson. The motion carried by voice vote.
Tax Amnesty
Mr. Thomas B. Miller, Commissioner, Department of Revenue, reported to the committee that Tax Amnesty was ongoing, with approximately one day and ten hours remaining in the application period. He discussed the provisions of tax amnesty, stating that taxpayers are required to pay both eligible and non-eligible tax periods. Approved taxpayers must pay the full amount of tax and one-half the interest due on eligible tax periods, with the payment on amnesty agreements due in full by May 31, 2013.
Commissioner Miller stated that as has been the case with the prior two amnesty programs, most of the applications are received within the last ten days of the period. There have been 15,000 applications received, and over 14,000 of those applications for amnesty have been approved.
Commissioner Miller stated that because of installment payments allowed for Tax Amnesty and the enhanced enforcement tools granted by the General Assembly, a final count of dollars collected through the program will not be available until the current fiscal year ends. Additionally, it will be at least another month before the processing has been completed for the applications received in these last few days of the program. Commissioner Miller stated that he is confident that the $55 million estimate for receipts from Tax Amnesty will be obtained.
In response to a question from Representative Ford, Commissioner Miller stated that everyone who fills out an amnesty application, is approved, and asks for an extended payment agreement may have until May, 2013 to pay all amounts due under the agreement.
In response to a question from Representative Yonts, Commissioner Miller replied that he is confident that the department will meet the $55 million estimate, but all income from amnesty has not been received yet, so a firm estimate cannot be made.
Kentucky Public Pensions Task Force
Representative Mike Cherry and Mr. David Draine, Senior Researcher, Pew Center on the States, reported to the committee that the Kentucky Public Pensions Task Force has completed its work and made recommendations for improving the financial health of the Kentucky Retirement Systems (KRS). Related to the unfunded liability, the task force primarily recommends that the full actuarially required contribution (ARC) be made beginning with the next budget cycle, FY 2014-2015 and FY 2015-2016, and the statutory provisions for cost of living adjustments be repealed. These two recommendations will result in an additional appropriation to the KRS of approximately $300 to $350 million for each year of the next biennial budget.
Other secondary recommendations include resetting the amortization period, modifying the provisions related to reemployment after retirement (commonly referred to as “double-dipping”), providing pension spiking provisions, establishing further transparency on the KRS website, and modifying the structure of the KRS Board.
Finally, a Hybrid Cash Balance Plan is recommended for all newly hired employees. This new plan will create a stable and sustainable retirement for employees, share risk between the Commonwealth and its employees, and provide an appropriate benefit plan to produce the needed workers for the Commonwealth.
In response to a question from Senator Smith, Representative Cherry responded that during the task force process, recommendations that could not be agreed upon were discarded. It is believed that the recommendations presented in the task force report are those that members of both chambers could agree upon.
In response to a question from Senator Westwood, Representative Cherry replied that he does not believe that the recommendations would be applicable to the Kentucky Teachers Retirement System. That system’s unfunded liability is increasing, but the more immediate need is found in the Kentucky Employees Retirement System and should be addressed first.
In response to a question from Representative Denham, Representative Cherry stated that the pension fund has historically outperformed the 7 percent return rate benchmark and is expected to continue to do so.
In response to a question from Representative Simpson, Mr. Draine replied that the Governmental Accounting Standards Board (GASB) changes to be adopted in 2014 will do away with ARC payment calculations and there will no longer be a mandatory ARC.
There being no further business, the meeting was adjourned at 3:30 p.m. A cassette tape this meeting is available in the Legislative Research Commission library.