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Tax on Kentucky Lottery Sales Under Consideration for Pension Fix

Kentucky LRC

Lawmakers are looking to the lottery for a source of revenue to shore up Kentucky's financially troubled pension system for government retirees.

Rep. Brent Yonts, chairman of the House State Government Committee that oversees pensions, said Friday the latest proposal would institute a 6 percent sales tax on lottery ticket sales and implement new games, which could include Keno.

The Greenville Democrat said a lottery tax could generate $49 million a year and that adding more games could generate $70 million to $90 million. He said those actions could be enough to cover the state's full contribution to the pension system, which has a $33 billion unfunded liability.

Yonts' committee is scheduled to vote on pension legislation next Tuesday. The House Appropriations and Revenue Committee would vote separately on the lottery proposal.

Lawmakers have been exploring a variety of potential funding sources in recent week for the pension system, trying to find the ones that are "most palatable."

"We've had as high as 19 income streams we've been looking at," Yonts said. "These are the ones we're focusing on."

Lawmakers have discussed increasing the state's cigarette tax from 60 cents to $1 a pack and allowing slot-like machines at all Kentucky horse racing tracks so that the revenue could be taxed. Neither of those appeared to have enough support to pass.

In Kentucky, actual slots are banned, but two horse tracks have installed similar "Instant Racing" machines that allow people to wager on the outcomes of past horse races. That spawned a legal challenge that is now pending before the Kentucky Supreme Court. Senate leaders insisted the Legislature needs to wait for the Supreme Court's ruling before moving ahead with the Instant Racing proposal.

The Republican-controlled Senate has already passed a pension bill that requires the state to make its full contribution to the pension system but doesn't identify a funding source to do that. House Speaker Greg Stumbo said the Democratic-led House wants a designated funding source.

Sen. Joe Bowen, R-Owensboro, said the state needs an additional $125 million a year to make its full contribution and that the Senate has made the commitment to appropriate that in the next budget cycle. He said the House should make that commitment, too.

"Once we make that commitment, then we will be obligated to fund it," said Bowen, chairman of the Senate State and Local Government Committee. "But if they see a real sense of urgency in finding a dedicated revenue stream, unless I feel like it's outlandish, I'm OK with that."

Gov. Steve Beshear has been pushing for tax reforms that could generate money for the pension system.

A group of experts serving on a commission appointed by Beshear last year proposed a list of tax reforms that would generate nearly $700 million a year in additional revenue. By adopting those recommendations, the Democratic governor said lawmakers could resolve the pension system's financial woes.

Beshear has said he's willing to call a special legislative session if lawmakers don't get the issues ironed out before they adjourn late next month.

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