Call to Order and Roll Call
The fourth meeting of the Interim Joint Committee on Local Government was held on Wednesday, October 26, 2016, at 10:00 AM, in Room 171 of the Capitol Annex. Senator Joe Bowen, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Joe Bowen, Co-Chair; Representative Steve Riggs, Co-Chair; Senators Julie Raque Adams, Ralph Alvarado, Stan Humphries, Christian McDaniel, Morgan McGarvey, Dorsey Ridley, Albert Robinson, Dan "Malano" Seum, and Damon Thayer; Representatives Linda Belcher, George Brown Jr., Ron Crimm, Mike Denham, Jim DuPlessis, Richard Heath, Cluster Howard, Adam Koenig, Brian Linder, Tom McKee, Michael Meredith, Russ A. Meyer, Phil Moffett, Jonathan Shell, Arnold Simpson, Chuck Tackett, James Tipton, Jim Wayne, and Susan Westrom.
Guests: Jonathan Steiner, Mayor Claude Christensen, Mayor Jim Barnes, J.D. Chaney, Kentucky League of Cities, Robert Gold, Rick Skinner, Mayor of Williamstown, Martin Voiers, Mayor of Flemingsburg, Jeff Edwards, Mayor of Monticello, Susan Barto, Mayor of Lynden, Mike Weaver, Mayor of Radcliffe, Brian Traugott, Mayor of Versailles Wayne Turner, Police Chief, Bellview, Kentucky, Shellie Hampton, Kentucky Association of Counties, Vince Lang, Kentucky County Judge/Executives Association, and Ron Wolfe, Association of General Contractors.
LRC Staff: Mark Mitchell, Joe Pinczewski-Lee, John Ryan, and Jay Jacobs.
Approval of Minutes
Upon the motion of Representative Tackett, seconded by Representative Belcher, the minutes of the September 28, 2016 meeting were approved.
Co-chair’s Remarks Regarding Jail Overcrowding
Representative Riggs drew the members’ attention to a series of articles in the members’ packets regarding the situation of jail over-crowding.
Kentucky League of Cities’ Legislative Platform for the 2017 Session of the General Assembly
John Steiner, Executive Director and CEO of the Kentucky League of Cities (KLC) said that Kentucky cities, rather than KLC staff, developed the 2017 platform. The city classification reform bill of 2014 helped extend maximum flexibility for cities for self-governance, but there is yet more work to do including assuring equal opportunity for all cities regardless of size and engaging in revenue diversification.
Mayor Claude Christensen, President of KLC, said that KLC’s agenda represents months of due diligence from the 62-member board. The board provides guidance to KLC staff who, in turn, work with the legislators. The board wishes to take a constructive and collaborative approach to the issues before it.
Earlier in the month, the board met and ranked more than 25 issues. The highest-ranked issue is the road funding formula. In 1948, the General Assembly established the county road aid and rural secondary road funding formula. In 1972, the municipal road aid program was created. Population shifts to cities and other factors render the formula as being out of date. Each year cities spend more than $250 million on the construction and maintenance of more than 10,000 miles of city streets. Transportation Cabinet figures show that in fiscal year 2014, cities received less than $60 million—less than a quarter of the cost of constructing and maintaining cities roads--from the road aid fund. During the last fiscal year, Sadieville received $5,837 dollars from the road aid fund. It spent $41,730 of general fund moneys on road maintenance. Sadieville’s total budget is $287,000. Most years Sadieville cannot afford to do any street maintenance. The previous two years it spent $51,000 and $65,000 on road maintenance, most of which came from the general fund.
Over the same time period, counties spent less than $290 million and received almost $325 million in road aid moneys.
The outdated funding formulas do not take into account lane miles travelled, or other measures related to use and or maintenance. KLC is proposing to change the formula from past proposals to allocate moneys to local governments with higher traffic counts and that have more frequent needs. The new method will preserve the existing “formula of fifths” until revenues exceed $825 million to ensure that no moneys are taken from the counties. One half of the funds in excess of that amount would be distributed based on the population living in incorporated areas versus unincorporated areas. The other half would be based on road miles in incorporated areas versus unincorporated areas.
The second priority is County Employees Retirement System (CERS) and anti-spiking legislation reform. Kentucky cities support the separation of the CERS from the Kentucky Retirement Systems (KRS). According to a pension system study by R.V. Kuhns, Inc., KRS is on track to undergo serious financial hurdles that include: “persistent funding shortfalls, elevated contribution levels, unsustainable payout ratios, and in the worst case scenario, the potential for a complete depletion of assets.” KRS is the worst-funded system in the U.S., but CERS is on an upward trajectory seeing its funding ratio increase while employer contributions have decreased. The Kuhns study sees the probability of CERS being fully funded in about 20 years. CERS pays nearly 63 percent of the total administrative expenditures of KRS. These expenditures include lawsuits filed against the system, salaries of employees, and fees and other administrative costs.
The KLC board of directors voted to make anti-spiking legislation modifications a legislative priority. The language presently in law has resulted in a cost to Kentucky cities through September 2016 of $1.5 million. Nearly 3,400 spiking bills have not yet been evaluated. KLC supports maintaining the provisions that prohibit the abuse and exorbitant artificial spikes, while making considerations for legitimate increases in compensation where appropriate.
Kentucky cities need the full spread of revenue options necessary for today’s economic challenges. KLC seeks to expand the restaurant tax to all cities in lieu of net profits or gross receipts taxes on the restaurants. Cities would retain up to 75 percent of the revenues, with the remaining 25 percent going to local tourism commissions. All Kentucky cities and tourism agencies should be equals when it comes to the tools available to their leadership. The KLC board of directors believes that adjusting the restaurant tax will allow for more direct investments in the community that are focused on economic growth. Cities would be required to use the revenue that they retain for the construction, operation, and maintenance of infrastructure that supports local tourism, recreation, and economic development. In 2014, the restaurant tax generated about $13.8 million for tourism commissions. If all cities were to enact a 3 percent tax on restaurants, tourism commissions would receive at least $43.5 million for marketing, allowing them to enhance tourism across the Commonwealth.
Drug abuse continues to plague and damage Kentucky cities. Its consequences have a devastating impact on the citizens’ quality of life—not only individually, but also from an economic and workforce development issue. In 2013, the KLC board adopted the following statement and continues to stand behind it today: “All citizens of every city in the Commonwealth of Kentucky are impacted by drug abuse. Drug abuse and its social, criminal and economic consequences have a devastating negative impact on the quality of life in communities across the state. Therefore, the Kentucky League of Cities strongly supports legislation that proactively addresses drug abuse and its consequences.” Cities have been strong advocates for legislation in the past dealing with this issue.
Kentucky cities have been vocal in the past to see current prevailing wage law repealed. A current, state-sponsored study shows that prevailing wage law can cost cities up to 30 percent more on construction projects subject to prevailing wage law as compared to construction projects not subject to it. Prevailing wage law offers no guarantee of a higher skilled labor or better work. Repealing this law means tax dollars could be stretched.
The KLC board believes that protecting home rule is the likely the most important tenet of their agenda. KLC will oppose any unfunded mandates that allow one governmental entity to freely spend tax revenue raised by another governmental entity without consequence. KLC will support legislation that will prohibit the General Assembly from making mandates to any local government unless the mandate is fully funded by the state or the programs are approved for funding by a vote of the local legislative body.
Mayor Jim Barnes, First Vice-President of KLC, said KLC favors increasing police and fire incentive pay, as was done in the most recent budget, to $4,000, as well as allowing an administrative reimbursement for the costs associated with the increased incentive which could cost all cities as much as $5 million a year.
The Local Investments for Transformation (LIFT) tax is a tool that will allow cities to not only grow their economies and create jobs, but will also give city leaders a chance to engage their citizens in the process. The LIFT tax will allow city leaders to build the building, and the proposed restaurant tax expansion will allow city leaders to support the building. Both taxes must go hand-in-hand. It is hard for small communities to both build the building and to maintain the building once built.
KLC will oppose the extension of the occupational license tax crediting provisions that were enacted in the final hour of 2014 and 2016 legislative sessions. KLC wishes to work with the members of the General Assembly and the Kentucky Association of Counties on this issue.
There are many issues that cause economic development not to happen. Limited revenue is one such issue. KLC wishes to look at increasing revenue without putting burdens on everyone else.
KLC wishes to be involved in criminal justice reforms, newspaper advertisement reforms, police body camera legislation, workers compensation legislation, and solid waste planning and local government investments therein.
In response to a question from Senator Bowen, Mayor Christensen said that to his knowledge separating CERS from KRS could render the spiking issue moot from the General Assembly’s point of view.
In response to a question from Senator Seum, Mayor Christensen said that cities receive no funds from the federal government for roads.
In response to a question from Senator Humphries, Mayor Christensen said that counties would not receive less money from the presently proposed road aid reformulation. The formula does not change until gas tax revenues exceed $825 million. Under the previous proposal, counties would have lost a share of the funding.
In response to a comment from Senator Humphries, Mayor Christensen said that he understood that counties have unmet funding needs for road projects, as do cities, but some cities, such as his own, have very limited revenue options to dedicate for road projects. City classification “2.0” is working to “level the playing field.”
In response to a question from Representative Riggs, J.D. Chaney, Deputy Director of KLC, explained the formula of fifths as it exists presently in statutory law. At the time the formula was established, there was an attempt to develop rural roads. The current KLC proposal only seeks to modify the formula to direct more of the road fund to urban areas when revenues exceed $825 million, whenever that may occur.
In response to a question from Representative DuPlessis, Mr. Chaney affirmed that KLC is open to working with KACo, the General Assembly, and the executive branch, and noted that the $825 million is the highest level of gas tax receipts received historically.
Representative DuPlessis commented that he did not want a policy that created problems for the future and that consideration should be given to synchronizing any caps in the proposed formula to changes in the value of the dollar.
In response to a question from Senator McDaniel, Mr. Steiner said that publication reform efforts are non-partisan, and cities of all sizes are in favor of it. Newspapers oppose it because of the loss of advertising revenues.
In response to another question from Senator McDaniel, Mr. Chaney said that KLC would be in favor of maintaining notices for a longer period on-line that currently required of print advertising in lieu of a larger newspaper publication, as was set out in SB 101 which Senator McDaniel sponsored recently.
Senator McDaniel noted LRC’s Program Review and Investigations Committee’s study of publication costs for local governments.
In response to a question from Representative Moffett, Mr. Chaney said that 2013 SB 2 made an incredible CERS funding trajectory change and provided a stabilization of employer contribution rates. However, not all the implications of the spiking language were realized at the time. The goal of the spiking language was to prevent employers and employees from colluding to artificially spike their compensation to increase their retirement benefits. The language did not anticipate such scenarios as leaving work under the Family and Medical Leave Act (FMLA) or absences under workers compensation that qualify for a “spike” in the law. There are several non-abusive, legitimate situations that the language catches that result as a bill being sent from KRS to the cities to pay for the costs associated with that spike. Other states cap the creditable compensation, rather than having the difference paid-in.
Representative Wayne suggested that KLC host a summit where national and other trends and perspectives can be analyzed comprehensively to correct the road fund issues for the long term, rather than for a shorter-term fix.
In response to a question from Representative Tackett, Mayor Christensen said that Sadieville spent $41,000 this year, $51,000 last year, and $65,000 the year before that for roads. Sadieville plans to spend $33,000 for roads next year and receives $5,800 each year from the road fund. Sadieville’s general budget is typically around $280,000.
Representative Brown noted that the funding needs and other needs of both the urban areas and the rural areas must be considered to improve the quality of life for all Kentuckians.
In response to a question from Senator Thayer, Mr. Chaney said that the KLC board of directors did not set a percentage of cities’ road construction and maintenance costs that cities would prefer to see the road fund finance.
Representative Meredith suggested looking at printing costs for all local governments. He would like to see consideration for eligibility regarding electronic media that is not recognized under the present publications language.
Representative Simpson commented that the issue behind the road tax was one of tax fairness for tax payers. The presently unfair formula will eventually be addressed at some point based upon population trends.
There being no further business, the meeting was adjourned at 11:32 a.m.