The fourth meeting of the Interim Joint Committee on Local Government was held on Thursday, October 11, 2007, at 11:30 AM, in Ballrooms A-C of the Northern Kentucky Convention Center, Covington, Kentucky<Room>. Following a luncheon, Senator Damon Thayer, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Damon Thayer, Co-Chair; Representative Steve Riggs, Co-Chair; Senators Walter Blevins, Jr., Julian M. Carroll, Alice Forgy Kerr, and Elizabeth Tori; Representatives Ron Crimm, Robert R. Damron, Ted Edmonds, David Floyd, Charlie Hoffman, Dennis Keene, Adam Koenig, Tom McKee, Reginald Meeks, Brad Montell, David Osborne, Arnold Simpson, Ancel Smith, Ken Upchurch, and Jim Wayne.
Guests: Senator Katie Stine; Senator Dick Roeding; Representative Mike Cherry; Representative Addia Wuchner; Representative Sal Santoro; former state Representative Jim Callahan; Sylvia Lovely, Neil Hackworth, Jerry Deaton, and J. D. Chaney, Kentucky League of Cities; Mayor Glenn Caldwell, City of Williamstown; Mike Phillips, Forward Quest, Inc. d/b/a Vision 2015, Covington; Douglas Shinkle, National Conference of State Legislatures; Kenzie Gleason, Lexington-Fayette Urban County Government; Colleen Chaney, Governor's Office for Local Development; and Shellie Hampton, Kentucky County Judge/Executive's Association.
LRC Staff: Mark Mitchell, Donna Gaines, Joe Pinczewski-Lee, John Ryan, Yolanda Costner, Elizabeth Beardsley, and Marlene Rutherford.
Senator Thayer recognized the Northern Kentucky Caucus and introduced a new LRC staff member, John Ryan, to the committee.
Upon the motion of Representative Damron, seconded by Representative Riggs, the minutes of the September 26, 2007 meeting were approved.
The first item of business was the presentation of the Kentucky League of Cities' legislative platform for the upcoming 2008 Regular Session of the General Assembly. Senator Thayer introduced Sylvia Lovely, Chief Executive Officer and Executive Director of the League, along with Mayor Glenn Caldwell, City of Williamstown and newly elected President of the Kentucky League of Cities, Neil Hackworth, Deputy Director of the League, and Jerry Deaton, Director of Governmental Affairs with the League, to make the presentation.
Ms. Lovely told the committee that there are three issues that the League will focus on in the 2008 session:
(1) The rising costs of healthcare and retirement. Cities' retirement costs have increased as a result of the increase in the healthcare portion of the benefit, and cities have no control over benefit packages and are required to participate in CERS. Cities' reserve funds are being used to cover these rising costs as well as other cost cutting measures such as personnel;
(2) Cities having more local authority to raise revenue. Cities lack the ability to raise revenue to keep up with escalating costs of healthcare, federal requirements on cities, etc. Kentucky's Constitution limits local governments in the ability to raise revenue such as a local sales tax or take advantage of revenue sharing. The League suggested that a constitutional amendment be considered in the 2008 General Assembly to allow the citizens of communities to be able to vote on whether or not to impose a local sales tax; and
(3) Telecommunication tax shortfall. Since passage of the tax replacing public service property tax and local fees on cable and telephone companies in 2005, most cities are experiencing a 15% shortfall.
Mayor Caldwell shared with the committee the effect retirement contributions will have on the City of Williamstown, increasing from the current $260,000 per year to $551,000 in five years. He noted that the costs need to be addressed and cities given the option to raise revenues to fund the costs.
Ms. Lovely discussed the parameters of a constitutional amendment and tax increment financing (TIF). She cited the State of Oklahoma as an example of implementing a 1% local sales tax. Ms. Lovely indicated the need to begin the educational process.
Mayor Watson, City of Owensboro, indicated that TIF has worked effectively for the city in pubic and private redevelopment, and investment. He added that TIF gives cities the ability to move forward.
Jerry Deaton discussed the CERS. He said that meetings had been held with various individuals and that there needs to be a short term fix. Mr. Deaton stated that there were four recommendations for consideration in the 2008 Session:
1) Preserve the defined benefit;
2) Employees need to pay more for benefits, that consideration be given to reasonable increases in employee contributions to fund cost of living adjustments and other benefits;
3) The unfunded liability of approximately $7,000,000 shortfall financed over twenty years instead of five years; and
4) CERS be allowed to issue bonds for the shortfall to fund unfunded liabilities.
Ms. Lovely pointed out that there are two phases involved with the problem: 1) future employees and 2) the baby boomer bulge.
Mr. Deaton addressed the issue of telecommunication tax reform. He said that the hold harmless clause amount originally set at $35 million was now determined to be $42 million. Mr. Deaton continued to say that an additional $7.2 million needs to be added to the hold harmless clause amount. He finished by saying that they would also be asking for approximately $20 million that has not been realized, due to the decreased hold harmless clause amount since the law became effective.
Before opening the floor up for questions, Senator Thayer asked Ms. Lovely to mention those legislators not in attendance that would be receiving a Friend of Kentucky Cities award. Ms. Lovely replied that the legislators were Senator David Williams and Representative Ron Weston.
Representative Upchurch indicated that the defined benefit in retirement needed to be reviewed and a defined contribution considered. He had concerns that employees draw more retirement funds than are put into the system.
Mr. Hackworth said that the cities were primarily concerned with healthcare costs for the 2008 session, and that there already is a defined compensation benefit in place for healthcare in 2003 or 2004 since the legislation became effective for CERS. He continued to say that Representative Upchurch's point was well taken, and that a way to handle the state problems may very well be different than handling CERS.
Representative Upchurch said that the current employees' defined benefit plan should not be affected; however, new employee hires would have a defined contribution benefit.
Senator Thayer pointed out that the Senate passed a bill during the last session with a 50/50 defined benefit versus defined contribution.
Representative Cherry said that the State Government Committee would be the committee where any legislation affecting retirement would start, and that in the 2008 Session there would be a bill that would continue with the defined benefit plan program.
Representative Crimm commented that he was pleased to see that the telecommunications tax issue was a priority with the League. He noted that he sponsored a bill last session permitting a fix, and that he hoped that the League would be more aggressive in its support.
Ms. Lovely thanked Representative Crimm for his efforts and assured him that the League supported his bill last year and will continue to support legislation fixing the telecommunications tax issue.
Representative Riggs expressed concern with the League's semantics of not pressuring the Administration to follow the law and have the state enforce the hold harmless language, rather than simply asking for $20 million.
Representative Meeks expressed concern over having non-elected board members being able, in certain instances, to raise taxes, and of the resulting lack of direct accountability of those board members.
Senator Thayer indicated that the Task Force on Local Government Taxation had a recommendation that any tax increases by a special district would receive approval by the fiscal court, and said that he would work with Representative Meeks to address his concerns on the accountability issue.
Ms. Lovely noted that for the constitutional amendment, accountability would be a significant component in that the people decide to levy the tax.
Representative Meeks replied that the accountability would have to be considered in any constitutional amendment.
Representative Floyd asked for clarification whether it was wise to increase taxes in order to fund unsustainable benefits without rolling back those benefits. He also asked why current methods of fundraising in general are not sufficient.
Ms. Lovely stated that cities want to bring down the cost of CERS and do not want to raise local revenue to pay for a problem without fixing the problem. She continued to say the long term retirement solutions could involve more years of service among other things. Ms. Lovely also said that a sales tax captures more types of income than property taxes, and that is why the League likes the idea of a sales tax.
Senator Carroll commented that the state insures 25% of the population at approximately $7 billion annually and that healthcare utilization drives costs up. He said that the state needs to be looking at associated costs of healthcare and recommended adopting a statewide program similar to that recently adopted by the University of Kentucky. Senator Carroll noted that issues related to hazardous duty, reduced retirement ages, and changing the high "3" to high "5" have increased costs associated with retirement.
Mr. Hackworth said that the League is wondering that if CERS can be separated from the rest of the system so improvements to the healthcare situation can be achieved. He added that it is already being done so to some degree concerning the Medicare side and that it could be moved into the non-retirees category. Mr. Hackworth continued to say that the League wants to look at the costs before proceeding. He stressed that healthcare costs must be reduced.
Senator Carroll also wondered if anything could be done to limit a double-dipper from drawing full retirement and a salary.
Mr. Hackworth said that while the League is open to looking at this issue and others, they are most concerned with healthcare costs at present.
Representative Damron stated that the healthcare issue definitely needs to be addressed. He said that people are encouraged to leave state government, and that they will then have retirement benefits, healthcare benefits, and the state then also has to pay for a replacement for the retired employee. Representative Damron pointed out that the legislature needs to find a way to not incentivize retirement. He also said that he was concerned about the issue of equality regarding the sales tax, and that revenue sharing for regions needed to be dealt with. Representative Damron's concern was that citizens of one city would spend dollars in a neighboring city and expect the city where they live to still provide them with services. He finished by saying the aspect of regional revenue sharing would need to be a component of a sales tax. Ms. Lovely agreed.
Representative McKee noted that the 911 systems in his district are a big problem. Mr. Hackworth indicated that there needed to be a more equitable system with cell phones as fees charged to land lines are increasing to pay for 911 systems as the number of land lines are decreasing.
Mr. Deaton agreed that the number of land lines is declining and it is very important to address it.
Representative Montell indicated that he would like to hear more discussions on the local sales tax issue and whether state government would be expected to continue the same level of funding if cities and counties are given the authority to raise local taxes. Ms. Lovely said there are greater needs at the local level than are currently being met, and that there should be a state and local partnership at least initially, for large projects, but that this relationship could be refined over time. She noted that the sales tax would be an option if it was needed locally.
Senator Thayer said taxes should be cut at the state level if local governments are allowed to implement taxes to pay or fund local projects and services.
The next item of business was discussion of issues relating to biking and walking trails. Senator Thayer introduced Mike Phillips, Park Initiative Coordinator, Forward Quest, Inc. d/b/a Vision 2015, Kenzie Gleason, Bicycle and Pedestrian Coordinator with the Lexington-Fayette Urban County Government, and Douglas Shinkle, Policy Associate with the National Conference of State Legislatures, to address the committee.
Mr. Phillips told the committee that Vision 2015's park strategies were the Ohio River Commons; Licking River Greenway; a three-county master plan; watershed-based planning; waterside trails; gradually linking parks to trails, and trails to trails to urban bike lane systems. He noted that the long-term goal was 100-200 miles of trails.
Ms. Gleason stated that Lexington is designated as one of two bike-friendly communities in Kentucky. She said bike and walking trails exist because of public demand, they improve the quality of life and health, there are regional and national competitions, and economics are affected because of the tourism benefit. Ms. Gleason noted that funding for these trails are derived locally, from grants, and transportation. She added that there are challenges to receiving funding because the limited state funds are very competitive. Ms. Gleason pointed out that there is a lack of state and regional coordination, there is only one state coordinator and no statewide authority or office, plans or strategies to address safety, and there is a need for basic infrastructure models or standards from local governments, transportation and development communities.
Mr. Shinkle shared different state strategies for bike and pedestrian infrastructure. He told the committee that some states mandate a certain percentage of funds for bike infrastructure, federal and state. Mr. Shinkle noted that the State of Oregon requires facilities for pedestrians and bicyclists for all roads that are built or rebuilt and mandates a minimum percentage of its state highway funds used for that purpose. He also noted that a transportation system designed and operated to enable safe access for all users called Complete Streets is utilized in the States of Florida and Illinois. Mr. Shinkle stated that most states do not have dedicated revenue streams for bike trails. He said some states impose a fee on vehicle registrations or allow localities to impose a hotel tax at a higher rate to fund the trails. Mr. Shinkle concluded by saying that in some states, there are incentives and immunities for landowners to grant property for paths or trails as well as incentivizing individuals, employers, and employees for using the trails such as to commute to work.
Senator Stine told the committee that it is her intention to introduce legislation regarding this issue and that it would be helpful to have the costs involved.
There being no further business, the meeting adjourned at 2:55 p.m.