Constitutional amendment giving KY cities, counties more taxing options moves forward
Kentucky’s cities and counties, which say they’re struggling to pay their bills despite a robust economy, would get more taxing options under a bill that is gaining momentum in the legislature.
House Bill 475, a constitutional amendment that would give the General Assembly authority to allow new types of local taxes, won strong approval Thursday in a 15-0 vote by the House Elections, Constitutional Amendments and Intergovernmental Affairs Committee.
The measure has 56 co-sponsors, including House Speaker David Osborne, R-Prospect, and House Minority Leader Joni Jenkins, D-Louisville.
If passed by the General Assembly, the amendment would be placed on the ballot in November.
The Kentucky Constitution limits the types of taxes local governments can levy. The amendment would give the General Assembly authority to allow other types of taxes, said J.D. Chaney, president and CEO of the Kentucky League of Cities.
Meredith said the constitutional amendment has bipartisan support and is backed by the Kentucky Association of Counties, the Kentucky League of Cities and the Pegasus Institute, a conservative think tank.
Meredith said Osborne asked him last year to research local taxation in Kentucky.
“Our local governments need help with funding,” he said. “This will give them help.”
Cities and counties are largely dependent on payroll taxes, taxes on corporate profits, property taxes, and taxes on utilities and insurance premiums.
“This would not automatically guarantee local governments would have the authority to levy a different type of tax,” Chaney said.
If voters accept the amendment, the General Assembly would later consider what types of taxes to allow, Meredith said.
Speaking against the measure was Kevin Cranley, chairman of the Kentucky Retail Federation and president of Willis Music Co.
He predicted the measure will lead to “a massive expansion of local sales tax” in Kentucky.
After the meeting, Meredith said he expected the measure to pass the House given its bipartisan support.
“Then I will go to work on the Senate,” he said.
Senate President Robert Stivers, R-Manchester, said Wednesday he supports the bill. If approved by voters, the legislature should enact broad tax reform, he said. Stivers cautioned that if local governments are given more taxing options, the state may decrease the funding it gives local governments.
Cities, counties say they need help now
In Lexington, where a recent report showed the city could face a deficit of at least $17 million by 2024, Mayor Linda Gorton is backing the bill.
Lexington largely relies on payroll taxes for its general fund, which pays for most government expenses.
A 1 percent local restaurant tax would generate $9.1 million in Lexington. Of that amount, $6.8 million would go to the city, according to a January report by a group convened by Gorton to look at the city’s revenues.
“Kentucky ranks in the top 5 nationally in local dependence on payroll tax revenues,” Gorton said. “It is not sustainable. Cities across Kentucky are facing significant increases in operating costs and pension costs. We need revenue options at the local level that enable us to continue to provide the investments in our communities that citizens expect, while we maintain our competitive advantage – low cost of living.”
Louisville Mayor Greg Fischer has already proposed a possible 3 percent restaurant tax in Jefferson County as a way of shoring up its finances. Its current-year budget was balanced on $25 million in cuts.
But it’s not just Kentucky’s two largest cities that are struggling.
In Georgetown, a recent analysis of city revenue and other data shows both a growth in residents and median income since 1999, but the city is struggling to pay its bills and expand its police and fire departments because so many people who live in Georgetown don’t work there.
In 2002, there were 8,757 employed residents, 63 percent of which worked outside Georgetown city limits. In 2017, there were 15,553 employed residents, but 73 percent work outside the city and county, according to the analysis.
Roughly 50 percent of Georgetown’s general fund comes from payroll taxes. Although residents employed outside of Georgetown pay other taxes, such as property taxes, those taxes don’t generate enough money to offset the cost of public safety.
“Over the next 12 years, our pension payments to the state will increase by an additional $17 million from today,” Georgetown Mayor Tom Prather said. “Where is that money going to come from?”
Georgetown has not been able to hire enough police officers to keep pace with its overall population, he said. That means on third shift there are only two officers and a supervisor to handle all calls. The police department does not have a separate narcotics unit and can no longer assign officers regularly to catch speeders and traffic scofflaws, according to the January report.
Boone County Judge-Executive Gary Moore, who is president of the Kentucky Association of Counties, said KACO supports HB 475 because counties are trying to fund operations based on an antiquated tax structure that doesn’t generate enough money to support government functions, even during flush economic times.
“Kentucky counties are limited to revenue options that are antiquated that don’t fit today’s economy. We need more flexibility,” Moore said. “Income taxes or payroll taxes are regressive when it comes to economic development.”
Moore, a Republican and a fiscal conservative, acknowledged the constitutional amendment may be a tough sell to voters.
“This isn’t about adding more taxes,” Moore said. “This is about different taxing options. When done right, we could lower the tax burden on our existing residents by spreading the tax burden more broadly.”
This story was originally published February 27, 2020 at 3:11 PM.
