Kentucky Governor Promises Tax Overhaul in State of the State

Kentucky is "shrugging off an historic reputation for backwardness," Gov. Steve Beshear told lawmakers Tuesday night, but he warned that the state's gains in education, jobs and health could be lost if they don't act boldly this winter.

Read text and highlights of every governor's State of the State.

By John Cheves, Jack Brammer and Sam Youngman

Kentucky is "shrugging off an historic reputation for backwardness," Gov. Steve Beshear told lawmakers Tuesday night, but he warned that the state's gains in education, jobs and health could be lost if they don't act boldly this winter.

Beshear, a Democrat, delivered his seventh State of the Commonwealth address to the General Assembly, which began its 2014 session hours earlier.

"Balancing our budgets during the recession, we were sometimes forced to cut far too deeply, decimating many programs and services that Kentuckians desperately need," Beshear said. "My friends, we need more resources to make needed investments in our future."

In a 50-minute, wide-ranging speech, Beshear said he will offer the legislature a "tax modernization proposal" to raise additional revenue and make Kentucky more friendly to business. And he again endorsed the legalization of casino gambling, which he has unsuccessfully pushed since his election in 2007.

The collected lawmakers gave only tepid applause to those two comments.

Senate President Robert Stivers, R-Manchester, said he appreciated the collegial tone of Beshear's speech but wants to hear more details about the governor's specific initiatives.

Asked to name any item on Beshear's wish list he could not support, Stivers mentioned the governor's call for a statewide smoking ban in restaurants and public places. Stivers said he does not patronize restaurants that allow smoking but does not think government should force such a ban on businesses.

Beshear defended the state's participation in the federal Affordable Care Act without identifying it by name. The controversial law has allowed Kentucky to connect 130,000 people so far with affordable health insurance, he said. One in seven Kentuckians had been uninsured, he said.

"They get up every morning and go to work, hoping and praying they don't get sick," Beshear said. "They choose between food and medicine. They skip visits to the doctor, hoping a condition turns out to be nothing. And they live in fear and anxiety, knowing that bankruptcy is just one bad diagnosis away."

Then Beshear delivered a stark warning on K-12 education. Years of improvement in test scores, graduation rates and college- and career-readiness are being threatened by a reduction in the state's funding of schools, he said.

"If we continue to cut or freeze education funding, our schools face the prospect of laying off significant numbers of teachers, greatly increasing classroom sizes and letting technology and equipment grow more outdated and useless," he said.

"We're in danger of losing all of the positive momentum which has been built up. And I am not going to let that happen," he said. "I am determined to find money to reinvest in education -- even if I have to make harmful cuts in other areas to do so."

The governor is expected to lay out his proposed two-year state budget, to include nearly $20 billion in General Fund spending, in another speech to the legislature on Jan. 21.

In coming days, Beshear said Tuesday, he will recommend a tax reform package to make Kentucky more economically competitive with other states trying to lure or create employers, based on some ideas put forward in 2012 by a committee led by Lt. Gov. Jerry Abramson.

He suggested that his package could include lowering the top individual and corporate tax rates, broadening the sales tax, taxing more retirement income, establishing an "angel investor" tax credit to help startups and expanding the research and development tax credit to "human capital."

"We've been talking about tax reform for decades," Beshear said. "My friends, it's time to take action."

Job creation is likely to be much discussed this session. By the end of 2013, Kentucky had 29,700 fewer jobs than it did before the recession began five years earlier, and one-third of working Kentuckians are earning poverty-level wages, according to a report issued this month by the Kentucky Center for Economic Policy.

However, Beshear in his speech did not mention raising the state's minimum wage from $7.25 an hour to $10.10 an hour, which House Democratic leaders say is their top priority for this session.

House Speaker Greg Stumbo, D-Prestonsburg, said he was not concerned that Beshear did not mention raising the minimum wage. "I haven't talked to him about that," Stumbo said. "He has his priorities and I have mine."

Beshear set several health-related goals to make the state's workforce more productive and attractive to employers, led by a 10 percent reduction in Kentucky's smoking rate by 2018. Last year, 28 percent of adult Kentuckians smoked.

"Kentucky ranks among the worst, if not the worst, in almost every major health category," Beshear said.

Additionally, he said he'll push for a ban on the sale of e-cigarettes to children; mandatory vaccinations for young boys and young girls for the human papillomavirus (HPV), a sexually transmitted infection that can cause genital warts and certain cancers; and strengthening the state's booster seat regulations.

Kentucky requires booster seats for children under 7 years old who are between 40 and 50 inches tall, but federal highway safety officials and pediatricians recommend booster seats for children up to age 9 and 57 inches tall.

Beshear also called for an extension of domestic violence protection to unmarried couples, something the Democratic-led House has passed for several years but the Republican-led Senate keeps killing. The latest bill on the subject is set to be discussed Wednesday in the House Judiciary Committee.

"Violence is violence and abuse is abuse, whether you're in a married relationship or a dating relationship," Beshear said. "Kentucky is the only state without any civil protection for victims of violence in a dating relationship."

(c)2014 the Lexington Herald-Leader (Lexington, Ky.)

Caroline Cournoyer is GOVERNING's senior web editor.
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