Call to Order and Roll Call
The first meeting of the Interim Joint Committee on Local Government was held on Wednesday, June 28, 2017, at 10:00 AM, in Room 154 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 Michael Meredith, Co-Chair; Senators Ralph Alvarado, Denise Harper Angel, Stan Humphries, Morgan McGarvey, Dorsey Ridley, Albert Robinson, Wil Schroder, Dan "Malano" Seum, and Damon Thayer; Representatives Danny Bentley, George Brown Jr., Ken Fleming, Kelly Flood, Toby Herald, DJ Johnson, Kim King, Adam Koenig, Brian Linder, Jerry T. Miller, Robby Mills, Phil Moffett, Steve Riggs, Rob Rothenburger, Attica Scott, Arnold Simpson, and John Sims Jr.
Guests: Mayor Tom Watson and Ed Ray, City of Owensboro; Mayor Claude Christensen, City of Sadieville; Bert May, Kentucky League of Cities; and Ron Wolf, Associated General Contractors of Kentucky.
LRC Staff: Mark Mitchell, John Ryan, Joe Pinczewski-Lee, and Cheryl Walters.
Municipal Perspectives of Statutory Effects on Cities’ Fiscal Resources
Transient room taxes. Mayor Tom Watson, City of Owensboro, said that the county created the tourism and convention commission and solely operates it. The money that goes to the commission is generated by a transient room tax of only one percent which is unfair. Eleven of the 12 hotels that pay the tax are within Owensboro which provides fire protection, public safety, infrastructure, and all that is needed to make people comfortable when they come to Owensboro.
Road fund formula. When the
road fund was created, Kentucky was more of a rural state and Kentucky is still
a rural state. The formula for distribution needs to be revisited. HB 292
demonstrated how the funding could be sent to the communities. When the funding
formula was started, the agriculture community needed to get products to the
city, and that was legitimate. Now Owensboro has 16.5 square miles within the
city and there are 462 square miles in the county, but the folks within the
city benefit the most as a general rule.
Telecommunication fees for cities. Mr. Ed Ray, Owensboro City Attorney and Assistant Manager, said that cities receive 83 percent in telecommunication fees but 17 percent of that is still not coming in, which is a huge hit for some cities. The state needs to collect the telecommunication tax on behalf of some cities that do not have the sophistication to collect the tax. Some cities do not have franchise agreements in place. Two recommendations come to mind if the tax is revisited, the first being a better incentive than 17 percent of the tax going to the state for cities that need the state to collect the tax on their behalf. The second would be giving communities more latitude in crafting their franchise agreements, like the ability to require the franchisee to have a local office, and having the ability to gain funding from the franchisee for projects like public access television. The current law no longer allows that. Many cities of the former second class have the ability to collect the telecommunication tax and to write their own franchise agreements.
Local option taxes. Mayor Watson stated that he would like any local government to be able to consider the imposition of a local option sales and use tax. The fact that some cities are allowed to collect certain taxes and others are not is a subject of concern. Owensboro has just undergone significant downtown development spending up to $150 million on the waterfront requiring the generation of revenue for the project. Owensboro has as much understanding of administering a local tax as anyone in terms of how much the community would tolerate and what the citizens would be interested in. The community would like some control and say over this potential revenue stream.
Statutory options for merger of local governments. There is an opportunity for unification so as not to duplicate services. A document between a city and a county should be devised for revenue sharing.
Mr. Ray noted that of around $7 million collected in total from property taxes in Daviess County last year, a little over $4 million was collected from city residents. Of the county services provided to the city residents, such as jails, emergency management, and animal control, the contributions to the budget of those services equaled around $790,000 out of the $4 million collected from the city.
Mayor Watson provided a breakdown of the total county budget figures for several county services.
Also, a task force should be created to study unification.
The ability to make more appointments to the local airport board would be welcomed, which would require a change in statute.
Senator Bowen commented that these issues are not unique to the City of Owensboro. These are issues all cities are facing.
City of Sadieville Mayor and President of the Kentucky League of Cities (KLC) Claude Christensen said that over 52 percent of Kentucky cities have populations of less than 1,000, with the City of Sadieville having 332.
KLC has a long history of being involved in tax reform discussions involving local governments. There should be tax reform but it should be deliberate and careful. There should be tax structure equity between cities. The playing field is not level. The idea that Sadieville cannot levy an occupational tax is not fair. Sadieville is not able to draw any revenue from the businesses in the town from that source. Cities want to partner with the General Assembly to level the taxing structure for fairness. Taxes need to be reasonable, intentional, clear, and fair.
KLC’s Board of Directors adopted several Principles of Advocacy. At the heart of those principles lies the preservation and expansion of home rule. To that end, KLC is against centralized collection of taxes and which is viewed as a “deal-breaker” by the KLC Board of Directors.
Small cities have many of the same issues as the larger cities—roads to take care of, buildings to maintain, land and park space, but just on a smaller scale. There are not as many police officers as in Lexington, but the ones employed in the city must be taken care of. For Sadieville, it is a choice of buying a cruiser or paving a mile of city streets. Sadieville receives $5,300 a year from the road aid fund to help maintain nine miles of city streets. It does not come close to the actual costs—the city must always go to the general fund. Sadieville’s total budget for this year is $333,000—the biggest ever. A third of that must go to maintenance. Small problems are more acute in small towns.
In summary, cities need the following: trust of the General Assembly; stability, flexibility, and tools that allow a diversity of approaches to problem solving; and room to work.
In response to a question from Senator Seum, Mr. Ray said of the money Owensboro gets from the transient room tax and sales tax, most of it goes to the tourism commission for marketing; one percent goes for infrastructure, and three percent goes for a tourism funding mechanism. The total percentage of taxes varies from location to location. Equity is a concern. Owensboro is prohibited by statute from levying a restaurant tax. And if Owensboro were to levy its own transient room tax, it would be a “stacking” tax—one that had no set-off and would be added to the other taxes lessening regional competitiveness. Allowing a restaurant tax for other cities would be a significant piece of legislation for the General Assembly to pass.
Representative Koenig commented that he echoes the concerns about centralized tax collection and supports the merger of local governments.
In response to a question from Senator Schroder, Mr. Ray replied that the telecommunications tax reform legislation took the teeth away from local governments—the only option left was federal arbitration in enforcement of franchise agreements. There are also never any competing franchise offers.
In response to a question from Representative Fleming, Mayor
Christensen stated that KLC is in favor of looking at alternatives or options
for revenues. There is a leaning toward a consumption-based tax structure.
Mayor Watson said the City of Owensboro has looked at everything for ways of
efficiencies. The occupational tax is on the back of the taxpayers and he hates
it, too.
In response to a question from Representative Riggs, Mayor Watson said he was not sure of any necessary changes to municipal annexation laws, and the City of Owensboro annexes everything it can. Mr. Ray added that Owensboro has a very aggressive annexation plan.
In response to a question from Senator Humphries, Mayor Watson said the City of Owensboro had to come up with an annexation program in order to grow because of geography. Mr. Ray said Owensboro has not had any forced annexations with the county—they have all been consensual—and has experienced only one de-annexation that was initiated by a boundary issue.
In response to another question from Senator Humphries, Mr. Ray stated that the county fully funds the jail. The revenue being generated for the county by the taxpayers within the corporate limits of the city is apparently higher than the county services that the city taxpayers receive.
In response to a question from Representative Miller, Mayor Christensen and Mayor Watson said they have tried to put together a taxation work group with KLC and KACo.
In response to a question from Representative Johnson, Mayor Watson stated that being able to “get in the door” for revenue sharing would be good, and then negotiations could begin.
Mayor Christensen commented that the City of Sadieville has a generous fiscal court in its county. The city and county have to partner to get things done. The City of Sadieville and Scott County have tried to cultivate a good working relationship. Anything the General Assembly could do to encourage partnerships would be very helpful.
Representative Meredith commented that cities and counties have to be careful when talking about revenue sharing because it is a city by city and county by county situation. In addition, the city reclassification bill was a first step. The next step will be to look at issues relating to uniformity and taxation and to look at some of the more controversial subjects that the bill did not address at the time.
Senator Bowen announced that the next meeting of the committee will be July 26th.
There being no further business, the meeting was adjourned at 11:20 a.m.