The House Elections, Constitutional Amendments, and Intergovernmental Affairs Committee passed House Bill 475 on Thursday. The constitutional amendment would allow the General Assembly to consider comprehensive local revenue reforms. It does not raise taxes or give local governments any new taxing authority. If Kentucky voters ratify the amendment in November, the legislature could begin discussing the best way to modernize Kentucky’s antiquated local tax structure. Those testifying on Thursday stressed that the goal is to ensure cities have adequate revenue for vital services while also spreading the financial responsibility.
KLC Executive Director/CEO J.D. Chaney testified in support of House Bill 475 alongside bill sponsor Representative Michael Meredith (R-Oakland) and Kentucky Association of Counties (KACo) Executive Director/CEO Jim Henderson, Greater Louisville Inc. Vice President of Government Affairs Shelby Williams, and Commerce Lexington Chief Policy Officer Andi Johnson. Meredith cited a bipartisan coalition of cosponsors that already numbers 41 representatives.
The bill amends Section 181 of the Kentucky Constitution, ratified in 1891, which restricts the ways local governments can generate revenue.
“Right now, we are specifically for our local governments limited to occupational license fees, some fees, and property taxes for the funding of those municipalities,” Meredith told the committee. “This would open that up so that in the future we don’t have this discussion again if new types of taxes come to be that recruit new businesses to our state or if new types of taxes are going to be what is needed for the flexibility of local government.”
“It’s not a restriction directly on local governments. It’s a restriction on you all, the General Assembly,” Chaney said. “That constitutional provision says that you can’t legislate outside of those three kinds of taxes that Representative Meredith just mentioned. This bill takes the handcuffs off the policy-making body in this commonwealth to design legislation that would allow local governments to do a more competitive tax code.”
Meredith explained how Kentucky local governments are at a competitive disadvantage to those in neighboring states that allow municipalities to diversify revenue to fund essential services. He specifically cited Hopkinsville and neighboring Clarksville, Tennessee. In 1970, he said, both cities had a population of approximately 25,000. Over the past 40 years, a boom in development helped Clarksville’s population grow to 160,000, while Hopkinsville is at 32,000. “A lot of this is because of economic development. A lot of this is about good tax policy. And this is not just about recruiting businesses. We all know we have a workforce problem that we need to address. This is about recruiting people to come here to take good-paying jobs,” he said.
Meredith also mentioned “guardrails” built into the four-step process to protect citizens. The House Local Government Committee passed House Bill 476 on Wednesday. The measure, a companion bill to House Bill 475, ensures local governments can continue to utilize tax laws already in statute but does not allow them to create new options.
“The first step would be the General Assembly passing this legislation. The second step would be having voters to decide ‘yes’ or ‘no’ if they want this ability. There are guardrails. If they say ‘yes,’ nothing changes currently until we as the General Assembly come back and create a framework for the future on what these taxes would look like that we would be able to change over time if we needed to. Then, the local elected officials would still have to take a vote to decide what they wanted to do in their individual communities.”
Three-fifths of the House of Representatives and the Senate must pass the measure to place it on the November ballot. If Kentuckians approve, the General Assembly could begin to pass a framework in 2023.
Also, at the Capitol on Thursday, the House of Representatives passed KLC-supported House Bill 297 with Floor Amendments 3. Representative Russell Webber (R-Shepherdsville) filed the amendment to ensure the separation bill legislators passed in 2020 (HB 484) does not give Kentucky Public Pensions Authority (KPPA) staff the ability to create a blank check to charge off unrelated Kentucky Retirement Systems (KRS) operational expenses.
“It was never the intention of this body, and I believe not the intention of us going forward, that one system should pay the cost forever for the separation,” Webber said from the House floor. “The bill called for the initial costs to be paid. However, what we’re seeing now is a decision being made to charge costs related to separation to CERS to go on forever.”
Floor Amendment 3 creates a sunset provision of June 30, 2024, for separation costs to be charged to CERS — plenty of time to compensate for initial separation startup costs to occur.
House Bill 297 also requires the KPPA board to approve a budget before submitting it to the legislature or governor, requires performance reviews for the KPPA executive director, and clarifies who hires KPPA staff.
The House voted 97-0 to adopt House Bill 297. It now heads to the Senate for consideration.