Call to Order and Roll Call
The first meeting of the Interim Joint Committee on Local Government was held on Tuesday, June 21, 2011, at 1:00 PM, in the Navigation Room of Terminal 1 at the Cincinnati/Northern Kentucky International Airport in Covington, Kentucky. 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., Jimmy Higdon, John Schickel, Dan "Malano" Seum, and Johnny Ray Turner; Representatives Julie Raque Adams, Ron Crimm, Brent Housman, Adam Koenig, Tom McKee, Michael Meredith, David Osborne, Jody Richards, Arnold Simpson, and Rita Smart.
Guests: Senate President David Williams, Senate President Pro Tem Katie Stine, Representatives Joseph M. Fischer, Addia Wuchner, and Derrick Graham; Steve Arlinghaus, Kenton County Judge/Executive; Gary W. Moore, Boone County Judge/Executive; Steve Pendery, Campbell County Judge/Executive; Barbara Schempf, Cincinnati/Northern Kentucky International Airport; Representative Joe Fischer, Cindy Arlinghaus, Boone County PVA, Dennis Gordon, Northern Kentucky Area Planning Commission; Mayor Paul Meier, City of Crestview Hills; Brian Miller, Home Builders Association of Northern Kentucky; Mayor Tom Rouse and Chief of Police Mark Fields, City of Erlanger; Tom Logan, City of Covington Engineer; and Garth Kuhnhein and Tom Wurtz, Northern Kentucky Tea Party.
LRC Staff: Mark Mitchell, Joe Pinczewski-Lee, John Ryan, Kris Shera, and Ashlee McDonald.
Opening Remarks
Kenton County Judge Executive Steve Arlinghaus explained that the airport is owned by Kenton County and located in Boone County. The airport has hosted as many as 600 flights per day but currently hosts fewer than 200 flights per day. Delta is cutting flights to the airport by 10 percent. The proposed cut was announced last fall, and the airport made budget cuts accordingly.
The air board recently voted on a $31,000,000 renovation project in Terminal 3, Concourse A, which was part of the Delta terminal. This new expansion will allow new partnering opportunities and profits for both Northern Kentucky and Cincinnati. These partnerships will also benefit the Commonwealth.
Judge Executive Gary Moore explained “regionalism” and how it relates to Northern Kentucky. By breaking down county and city lines, Northern Kentucky has improved efficiency and effectiveness. Although there are questions concerning individual rates, most people realize that even though some rates are higher than preferable, they are lower than what they would be with 30 to 40 individual entities. Northern Kentucky tries to regionalize every opportunity it can. Last year, Boone County regionalized its water rescue department. Having one water rescue department patrolling the entire riverfront is much more efficient than having independent and separate entities. Northern Kentucky is debating whether to regionalize 911 dispatch. When Northern Kentucky evaluates the different entities and how efficiency can be improved, it often runs into state law barriers.
Mr. Moore asked that the legislators not pass any unfunded mandates to local governments. The legislature made positive changes to the pension system. In the Boone County budget, the pension cost is one of the greatest costs to the local taxpayers. Taxpayers are willing to pay more in Boone County in the short term if it will help the county in the long term.
Boone County is the 4th largest county in Kentucky, and its greatest challenge is economic development. The greatest revenue source is payroll taxes. The airport is a key contributor to the economy and job industry.
Campbell County Judge Executive Steve Pendery stated that while there are great strengths to be found in Northern Kentucky, with 36 cities and 3 counties, it is a challenge to find one voice to speak for the entire area. The division along jurisdictional lines helps explain the desire for consolidation, but legislation is needed to overcome certain obstacles. As an example, neither the fire departments nor the Emergency Management offices are allowed to consolidate by law.
Another great strength of Northern Kentucky is the close proximity to Cincinnati, but it also creates some problems. While 2011 HB 463 is an asset to society, there is concern that the drug laws may not be as stiff in Kentucky as in Ohio. When looking at problems with local implications, the best thing is to free the locals to cope, rather than try to prevent them from failing.
Senator Schickel stated that the airport is the top priority for the Northern Kentucky Legislative Caucus, as demonstrated with the successful Senate passage of SB 48.
Cincinnati/Northern Kentucky International Airport
Barbara Schempf, Director of Public and Governmental Affairs, stated that the airport is going to reactivate and revitalize Concourse A. The renovation allows for growth, which with air service are tied closely to economic development and job retention and attraction. SB 48 is expected to be refiled in the 2012 session and is strongly supported for what it will do for the airport community.
The airport is also interested in a bill that after the Tourism and Development Act. A creative funding source is sought so the airport can use the existing revenue sources that are created to attract more air service.
These two bills would help the Northern Kentucky region and the entire Commonwealth by bringing in more air service, which is directly tied to job retention, attraction, and growth.
2011 HB 137 relating to the calculation of property tax rates relating to the provisions of HB 44
Chairman Thayer explained that 2011 HB 137 was filed to address the calculation of property tax rates as it relates to the provisions of 1979 HB 44. HB 137 should be kept in the forefront.
Representative Fischer, who is the sponsor of 2011 HB 137, stated that HB 44 was a reaction to what was occurring in the nation. Property taxes were rising in response to inflation. Presently, the problem is that property values are declining, yet taxpayers are being asked to pay more on that property.
Boone County PVA Cindy Arlinghaus brought this matter to his attention last year to explain the anomaly in HB 44. The bill was designed to prevent any property tax revenue greater than 4 percent without being subject to a recall. In HB 44, there are no limitations on local taxes; it just makes the tax increase subject to a local recall. It was amended in 1982 to allow local jurisdictions to raise tangible property taxes to compensate for a reduction in tangible property. The way the rates are calculated, the interaction between the compensating rates for real property and the compensating rate for personal property automatically allows for local governments and taxing districts to impose tax increases greater than 4 percent without a recall. The purpose of 2011 HB 137 was to address that particular anomaly. The result of the 1982 amendment contradicts the original purpose of HB 44.
Ms. Arlinghaus said that, if there is a disparity between real rates and personal property rates, the 4 percent revenue ceiling is not enforceable. There is a “however” clause within the statute that allows the taxing entities to use a “loophole” to collect more revenue than HB 44 intended.
In Warren County, when the fiscal court says it is taking the compensating tax rate, which should produce the same amount of tax revenue as the previous year, it is actually taking in 5.9 percent more. The compensating tax rate can be taken without a public hearing. Warren County Fiscal Court has the ability to take 5.9 percent more revenue, excluding new property, and call it a “compensating rate.” Since Warren County is also allowed to take the mandated 4 percent, it has the ability to take 10.2 percent more revenue without having the possibility of voter recall. She also cited similar examples occurring in Madison County and Kenton County. Even though taxing districts have the ability to take more than the 4 percent, they may not always do so.
Ms. Arlinghaus had written to the Attorney General in regards to the tax rate calculation process. There has been discussion as to whether litigation would be the proper route. In the statute that defines a compensating rate, it specifically excludes personal property. The “however” clause allows it to include all property. The question that was asked of the Attorney General was how personal property could be included in this calculation, which is what causes the loophole, when it is specifically excluded in the statute. The answer was that the exclusion only applies to the first sentence and not the second sentence of the statute.
An Attorney General’s opinion from 1980 was cited. In response to a question regarding whether a city could have different tax rates for personal and real property, the Attorney General said this is permissible because the clear and unambiguous intent was to place a ceiling upon real property tax rates, while specifically exempting personal property tax rates.
There is also a uniform taxation issue. This is thought to be permissible because the rates are based on local tax authority decisions. There has been some discussion on litigating the issue, but it would be an added expense.
The only thing that 2011 HB 137 does is change the wording to eliminate the loophole. There has been some discussion whether this will hurt the revenue of cities and counties. It does not hurt revenue because each county or city is guaranteed the same amount of money as last year.
Representative Fischer noted that Section 4 of HB 137 is the key part of that bill.
Representative Riggs requested that Ms. Arlinghaus note a letter from the Commissioner of the Department for Local Government, who made the point that the substitute rate and the compensating tax rate are the same.
Responding to a question from Representative Riggs, Ms. Arlinghaus said she believes the compensating and substitute rates are two different rates. When a tax district is given its tax rate calculation sheet, these rates are listed as two separate rates. The “however” clause does allow for the compensating tax rate to be defined as the substitution rate, but it allows for a much higher rate than what would have originally been if focus had been given on the true compensating rate.
When one looks at the tax calculation worksheet, there are three separate rates. The first is the compensating tax rate. The definition of compensating tax rate, according to the statute, includes a “however” clause. The Department for Local Government states that, because the statute includes the “however” clause, the higher rate, which is referred to as the substitute rate, is in actuality the compensating rate. Both rates are calculated separately. The “however” clause allows for that loophole to be considered as the first rate.
Representative Riggs noted concern because leaders of local governments inform the legislature that it will in fact reduce their revenue, and the local governments are concerned over cuts affecting their police departments and fire departments, as well as other parts of local governments. Ms. Arlinghaus stated that 2011 HB 137 will not reduce the local governments’ revenue, but it may make it more difficult for local governments to collect the higher tax rate. The local governments are always guaranteed the revenue of last year.
Chairman Thayer expressed concern regarding the taxpayers’ revenue and where their money comes from to pay the higher tax rate.
In response to a question from Senator Seum, Ms. Arlinghaus said fire districts and any entities that are using the highest statutorily permissible tax rate are exempt from the 4 percent taxing rule. Any school district she has observed took the 4 percent.
In response to another question from Senator Seum, Ms. Arlinghaus said that new additions to the property tax roll are always excluded from the 4 percent rate calculations, and taxes can be collected on the existing property and the new property. Senator Seum wanted to clarify that if a new property comes on line the next year, it can only be raised 4 percent. Ms. Arlinghaus explained that the revenue of the taxing district is looked at as a whole. For example, if the City of Covington acquired $100,000 last year, no matter what the assessments do, the most the city can take in is $104,000, plus revenue from new property.
In response to a question from Senator Schickel, Ms. Arlinghaus stated that she did not believe the 4 percent rate loophole issue applied to state taxes; it is more of a local issue.
In response to a question from Representative Simpson, Ms. Arlinghaus stated that she has had some dialogue with local government officials.
Representative Wuchner, a co-sponsor of HB 137, added that Farm Bureau had concern that there would be an increase of the 4 percent set point to that of a higher set point.
Representative Richards explained that the main reason the legislature passed HB 44 was that the property taxes in the state were escalating every year and there was a national move to reign in property taxes. At that time, it was a favored bill because it put a ceiling on property taxes, which in turn has made Kentucky’s one of the lowest tax rates in the country.
Northern Kentucky Area Planning Commission (NKAPC)
Chairman Thayer stated that the NKAPC matter had first come to his attention when Representative Simpson filed an amendment to a senate bill during the 2011 Regular Session. Representative Simpson later withdrew that amendment.
Representative Simpson explained that the particular statute in KRS Chapter 147 is only utilized by one area planning commission, NKAPC. NKAPC began as a two-county entity with Kenton County and Campbell County until the latter withdrew. The commission has continued to act on behalf of the citizens of Kenton County. The amendment was filed because, after a multi-county commission loses one member, some individuals believed it was no longer legal. The amendment was intended to clarify that matter, not to harm the senate bill.
Northern Kentucky contains a plethora of communities. Local governments must demonstrate more efficiency prior to allowing tax increases. NKAPC is a vehicle of efficiency, and if the citizens lose this, it will cost the taxpayers more money.
Crestview Hills Mayor and Chair of the Kenton County Mayors Group, Paul Meier, said that his community is one of the 20 local governments in Kenton County that benefit from NKAPC. In the 1960s, the Northern Kentucky suburbs were booming but planning and zoning was scattered amongst 23 local planning and zoning commissions. There was no efficient way of planning and zoning in the overlapping local governments. Campbell County and Kenton County moved forward to create NKAPC in 1961, but Campbell County voted to leave the NKAPC in 1982. A 1983 lawsuit challenged NKAPC’s legal existence. A special court judge ruled that NKAPC could continue to operate with only one county. In 2008, another question of the NKAPC’s existence was determined in court. In the ruling, a circuit judge ruled that he would not challenge NKAPC’s validity. Today, NKAPC operates primarily out of Kenton County, an area of 20 urban, rural and suburban jurisdictions.
NKAPC is a prime example of reducing the size of the government, while also providing a wide range of services. Eliminating NKAPC would not only increase the size and cost of government, but it would do so at a time when budgets were already facing a crisis. For example, Independence would need to find approximately $400,000 to provide the services that the NKAPC provides them today.
Dennis Gordon, Executive Director of NKAPC, stated that the purpose of NKAPC is to provide for a more efficient planning operation. Each district contains a KRS Chapter 100 planning commission. Each NKAPC local government appoints one of its local officials to serve on the board. The board is responsible for approving NKAPC’s annual work program and its budget. NKAPC’s fiscal management is subject to review and approval by elected officials representing the taxpayers of the jurisdictions it serves. The staff of the NKAPC is divided amongst the jurisdictions. NKAPC provides staff responsibilities for long range planning for the comprehensive plan that is required by statute. NKAPC provides current planning experience that oversees administration of the zoning ordinances and engineering that oversees administration of subdivision regulations.
Part of NKAPC’s responsibilities to the Kenton County Commission is the administration of 20 different zoning ordinances. NKAPC also provides street inspections for new subdivisions within the 20 jurisdictions. NKAPC’s services to local governments provide examples of more efficient planning. Code enforcement, administration of a GIS system, and responsibilities for the Kentucky building code are expensive.
NKAPC’s building inspectors championed a state law change so that Covington and other historic communities across the Commonwealth can facilitate job creation. Planners with NKAPC worked with local agricultural interests to get the Kenton County zoning ordinances amended to provide for agri-tourism and farmers markets in the rural area.
The Geographic Information System (GIS) staff works to keep the data in the digital mapping system current, which allows numerous local organizations to leverage the data as matches for governmental grants. On a yearly basis, this NKAPC service brings in more money to the jurisdictions than it takes to operate the GIS system.
NKAPC works to compare its expenditures to the expenditures of neighboring counties for the exact same services. NKAPC spends $26.26 per Kenton County resident for the same services while Boone County spends $23.73 for each Boone County resident. Campbell County’s expenses could not be calculated because each of the nine planning commissions provide different services. NKAPC staff serves 136 local elected officials. Boone County serves fewer governments and local officials. NKAPC still delivers the efficiencies that were planned in 1961 when local officials met with legislators to create the area planning commission laws. NKAPC has met the same economic challenges as other entities across the Commonwealth. NKAPC had a $5.3 million dollar budget and 51 person staff when the economy collapsed. Since fiscal year 2008, the NKAPC’s budget is down over $750,000 and ten staff through layoffs.
Mark Fields, Chief of Police, City of Erlanger, stated that, approximately five years ago, the Erlanger expanded the dispatch operations to include 11 cities in Kenton County. About 50 percent of Kenton County’s dispatch is done through the Erlanger.
When the expanded dispatch process started, there were two main goals. The first was to have an information sharing tool for all departments. The second was to implement crime mapping. When the city partnered with NKAPC, NKAPC already used Web-Focus, which allowed the department to implement, at a greatly reduced cost, a crime mapping system. The chief hopes to share this crime information with the public. The city spent $70,000 on this service; without NKAPC, it would have cost the city between $200,000 and $300,000.
Another service NKAPC provides the city on a yearly basis is 911 coverage maps, which are given to the Commercial Mobile Radio Service Emergency Telecommunications Board. That is how the city’s cell phone money is divided. If Erlanger had to provide that on its own, it could cost approximately $20,000 per map.
Tom Logan, City Engineer for Covington quoted Michael Dell, said that NKAPC’s collaboration and innovation have lead to the successful launch of the enVista Infrastructure Management Software System. EnVista is an innovative map-based infrastructure coordinating tool that allows municipal organizations to communicate and coordinate work efficiently through proactive infrastructure management in real time. This saves taxpayer money.
Participants using this system include: 16 local governments; the Kentucky Transportation Cabinet; Duke Energy, the sanitation district; Northern Kentucky Water District; Cincinnati Bell; and Insight Communications. When critical infrastructure needs exceed available funding, this type of efficient government collaboration is essential.
Tom Rouse, Vice President of the Kentucky Bar Association and Mayor of Erlanger, stated that if the NKAPC ceased to exist, it would increase costs for the Erlanger and taxes would go up. Pension costs put more fiscal pressure on local government. The legislature should strongly consider Representative Simpson’s amendment because NKAPC is a necessary tool that Erlanger greatly utilizes.
Brian Miller, Executive Vice President of Northern Kentucky Home Builders Association, stated that there were two planning commissions in Kenton County. One is the Kenton County Municipal Planning and Zoning Commission and the other is NKAPC. There has been discussion in the media regarding comprehensive plan updates, subdivision regulations, and zoning ordinances. Those are a statutory responsibility under KRS Chapter 100 of the Kenton County Municipal Planning and Zoning Commission. The services are contracted to the NKAPC. By statute those are not a first line responsibility under KRS Chapter 147.
Under the area planning commission enabling legislation, the commission must involve two counties. The population of one city within one county must have at least 50,000. There is language regarding the dissolution of a member in the planning commission. The commission functions after such withdraw with its boundaries consisting of the remaining counties’ members. It contemplates a multi-county system. Further, in KRS 147.670, under additional powers and duties of the commission, the word “counties” is used, making it plural.
The Northern Kentucky Homebuilders Board made a unanimous decision to support any efforts to dissolve the NKAPC. It believes in strong, county-wide planning and zoning that should be done under KRS Chapter 100 under the Kenton County Municipal Planning and Zoning Commission with its own staff and resources. NKAPC is the only planning commission in the state that has the ability to directly levy a tax. The Homebuilders Board originally supported the legislation allowing NKAPC to exist, believing that it would operate in Boone, Kenton, and Campbell counties, and operate from a set of subdivision regulations across three counties. Boone County never joined and Campbell County eventually withdrew. NKAPC has been operating outside of the spirit of the enabling legislation. In addition, the regulations that NKAPC passes are cumbersome and inhibit growth and suppresses the economy. NKAPC services should continue but only under the Kenton County Municipal Planning and Zoning Commission.
Based upon staffing, population, costs to local governments, and contributions to NKAPC from those local governments, NKAPC is operating in an inefficient manner. Growth in residential construction in Kenton County is half that in Boone County. NKAPC is providing services at four times the cost and with less volume of residential work. Since NKAPC approves its own budget, there is little public oversight, which has resulted in a $4.79 million dollar NKAPC budget. Boone County’s planning commission budget is $1.59 million. NKAPC conducts studies that cost taxpayers and should be bid out to private groups. The Northern Kentucky Homebuilders organization supports county-wide consolidation and planning services under the Kenton County Municipal Planning and Zoning Commission. Persons are sometimes paying twice for home inspections, conducted by NKAPC inspectors and considering home inspection fees coupled with the property tax that NKAPC receives.
According to the last census, there were around 69,000 households in Kenton County. In the last 10 years, the households in Kenton County have increased by 5,404. The full budget for the NKAPC is over $4.5 million dollars with $3.4 million from direct taxation. In Boone County, there are approximately 46,000 households with a growth of 12,803 in the last 10 years. An additional $506,000 is derived from code inspections. Boone County’s planning commission budget is $1.5 million dollars. In Campbell County, there are around 40,000 households with a growth of 2,625 in the last 10 years. Its cumulative planning budgets equal $600,000. The budget for the Louisville Metro Planning Commission is $2.889 million dollars. It has 337,000 households and a growth of 31,781 in the last ten years. Its budget is $1.7 million less than the NKAPC’s. Lexington-Fayette-Urban County Government has 135,000 households with a growth in ten years of 18,793. It budgets $1.696 million for planning.
Some cities in Kenton County have requested a breakdown of the actual services received for the amount of money that is being budgeted for the services. Upon review, the cities appear to be receiving less than 20 percent of the services accounted for. Some cities are beginning to assume control of inspection and plan review services from NKAPC indicating dissatisfaction with NKAPC. NKAPC’s budget is under consideration for the year 2012. The county judge has asked that NKAPC’s budget not be approved by the June 30th deadline in order to investigate the services that the cities and counties receive.
In response to a question from Senator Thayer regarding Kenton County’s planning and zoning commission’s current duties, Mr. Miller said that it does not have a staff; it employs its own attorney, and uses the staff of the Area Planning Commission.
Garth Kuhnhein, representing the Northern Kentucky Tea Party, explained the Tea Party’s core principles: limited government, fiscal responsibility, and free markets. The Tea Party is involved in this discussion because NKAPC violates all of the Tea Party’s principles.
NKAPC charges fees and levies a tax for what the Kenton County Planning Commission should be doing. NKAPC employs 42 persons with slots for 55, while Boone County performs the same planning and zoning duties with 16 employees, and Campbell County performs planning and zoning duties with five employees.
NKAPC’s budget is $4.7 million compared to surrounding counties of Boone, with a budget of $1.5, and Campbell, with a budget of $4.15 million. Boone and Campbell counties spend less per capita and less in their budgets. The Tea Party encouraged the mayors to look at how much work was being done by the NKAPC in relation to the money that was contributed. The Tea Party thinks that the cities get ten cents of work for each dollar contributed.
Kenton County has the highest tax rate and the highest poverty percentage in Northern Kentucky. Mr. Kuhnhein wondered if this high poverty rate is associated with the increased fees the citizens are paying to NKAPC, increased Sanitation District 1 charges, and increased water and utility rates. Mr. Kuhnhein questioned why the citizens would not support efforts to streamline government to decrease the amount of taxes, and to have inspections currently performed by NKAPC instead be performed by private inspectors. The private sector could be supported by having the inspections conducted by private inspectors.
In response to a question from Chairman Thayer, Mr. Kuhnhein explained that the legislation that enables NKAPC contains a mechanism for the citizens to invoke a ballot initiative to dissolve NKAPC. After the required signatures are obtained, prior to August 9 of this year, it will be placed on the November ballot.
Tom Wurtz, Northern Kentucky Tea Party, expressed his concern over the legality of NKAPC. Private entities existing or operating against the law are treated differently than government entities existing against the law. There is concern with the timing of the amendment to allow the commission to operate with one county instead of with two. If the courts have determined NKAPC to be operating legally, the necessity of legislation is questionable. Also, the specifications for road construction that NKAPC creates are inadequate and are costing the local governments money because the local governments have to replace the roads early. Fort Thomas was selected as the top place to live in Northern Kentucky. It is in Campbell County with fewer taxes and not Kenton County where NKAPC operates.
Representative Koenig responded to Mr. Wurtz’s concerns by stating that, if two judges say one is acting legally, one is acting legally. Other counties contract with NKAPC for services they do not have access to, which adds to NKAPC’s budget and makes it look bloated. The NKAPC also conducts inspections, which are fee based. Representative Koenig supports planning and zoning and realizes that not everyone supports it. The Tea Party should sit down with members of NKAPC.
In response to a question from Representative Koenig, Mr. Wurtz stated that the Tea Party would appreciate a meeting with the members of NKAPC since they are trying to educate themselves and other citizens.
Mr. Kuhnhein added that Tea Party members had attended a mayor’s meeting where it was explained that the officers who approve NKAPC’s budget meet twice a year. Approving a $5 million dollar budget with only two meetings a year causes concern.
Representative Koenig explained that the legislature often has “clean-up” legislation, which is legislation that is passed to conform to judicial rulings.
Representative Simpson explained that he filed the amendment late because that was when this matter was brought to his attention. His intention was to clarify the law. The amendment would not have affected the referendum process.
Senator Higdon stated that he was satisfied to see that in Kentucky there are remedies for these types of situations and several options for a solution.
Representative Riggs wanted to clarify whether the Northern Kentucky Home Builders Association or the Northern Kentucky Tea Party has had discussions with the board of NKAPC. Mr. Kuhnhein stated that the Tea Party had not met with the leaders of NKAPC. The petition would be to dissolve NKAPC. Asking NKAPC to dissolve itself would be unproductive.
Mr. Miller stated that the Northern Kentucky Home Builders Association has met with NKAPC on a regular basis just as it does with every planning commission in Northern Kentucky.
There being no further business, the meeting was adjourned at 3:40 p.m.