Cities seek local revenue options
FRANKFORT, Ky. (June 28, 2017) — It took around $150 million to revitalize Owensboro’s waterfront, the city’s mayor Tom Watson today told the Interim Joint Committee on Local Government. Watson said paying for the project under the city’s existing tax structure wasn’t easy.
No new city revenue stream was available for the project at the start, said Watson, pushing the city seek other funding sources including some federal funds. Having more local tax options—including the option to levy a restaurant tax, which Owensboro cannot levy under current Kentucky law—would help cities like his build their infrastructure and be more competitive, he said.
Kentucky is one of only a handful of states that does not give cities or counties authority to level a local option sales tax, although proposals have been considered in recent legislative sessions.
“We think we have as much understanding as anybody of what our community can tolerate, of what they’d be interested in,” Watson told the committee. “I’m not a tax-and-spend guy, I promise you … and this is just an option. We’d like to have some control and some say in what happens.”
Joining Watson before the committee was Kentucky League of Cities (KLC) President and Sadieville Mayor Claude Christensen, who said his response to local tax reform is “yes, please.” With only 332 residents, Sadieville doesn’t have much tax revenue. And it’s not alone: Most of Kentucky’s cities, or 52 percent, have fewer than 1,000 residents, said Christensen.
Another issue raised was city-county revenue-sharing. Watson said he would like to see more on that front, although Committee Co-chair Rep. Michael Meredith (R-Brownsville) cautioned against General Assembly involvement in such situations.
“I think it’s a city-by-city, county-by-county kind of situation that probably we don’t, as a General Assembly, need to step into because it is really a case-by-case basis,” said Meredith.
Committee Co-chair Sen. Joe Bowen (R-Owensboro) said the issues affecting Owensboro and Sadieville affect cities all across Kentucky. He mentioned the 2014 General Assembly changed the way cities are classified under state law, with all cities now falling under two classifications – first-class (Louisville) and Home Rule (all other cities)—instead of the previous six. The change removed what KLC has called the “restrictions and red tape” of the old classification system to help all cities while safeguarding certain privileges the old system gave smaller cities.
“It’s an economy of scale,” said Bowen.
Watson and Christensen said they see room for improvement. Owensboro is still prohibited from levying a restaurant tax. Only cities classified as fourth or fifth class cities as of January 2014 can do that. And Sadieville, a former sixth-class city, is limited in its ability to raise revenue as well, specifically occupational tax, said Christensen.
“I can’t levy an occupational tax in Sadieville. By statute, I’m prohibited from doing that,” said Christensen. “So we’re limited.”
Christensen said he wants to partner with the General Assembly as both a small-town mayor and KLC President to level and improve the local tax structure.
“So if your question today for me, at least, is what we need in small towns, we need you to trust us. We have adding machines and calculators, we have smart people, we have capable people to manage money,” said Christensen. “We need flexibility.”
Meredith reassured the mayors that providing more local flexibility is part of discussions at the state legislative level, including discussions relating to local taxation.
“Hopefully we can move those forward,” he said.