During a legislative update with KLC members Monday, House Local Government Committee Chair Representative Michael Meredith (R-Oakland) and KLC Executive Director/CEO J.D. Chaney asked city leaders to reach out to their senators and urge passage of House Bill 475 and House Bill 476. The measures would amend Section 181 of the Kentucky Constitution, which restricts the General Assembly from considering new options for cities to fund vital services.
House Bill 476 ensures local governments continue to utilize tax laws already in statute while the legislature considers proposals that update local revenue streams. Neither bill allows local governments to create new taxes nor do they increase taxes.
Meredith stressed that the measures must pass to give Kentucky a flexible local revenue system that capitalizes on community diversity and creates an economically competitive atmosphere throughout the state.
“This is truly a once-in-a-generation opportunity, I think, to right a ship that has turned in the wrong direction for way too many years,” Meredith said. “We’ve known almost three decades that this has been an issue. Over and over we’ve seen more and more looks at what we can do to improve both competitiveness across the state and to create a more steady growing revenue stream for our local governments. And we have known that without doing something to our constitution, to open up a better local tax structure, we can’t do that.”
The Senate Appropriations and Revenue Committee needs to pass the bills when the General Assembly returns on Wednesday for the final two days of the 2022 Regular Session. Once the Senate passes the bill, voters will decide in November on the need to change the outdated section of the constitution.
“There’s still a lot of work to do even once we get this measure out of the Senate. We’ve got to pass it on the ballot, and we’ve got a lot of work to do to create enabling legislation after that,” Meredith added. “But we’re as close as we’ve ever been to actually make a real change in this after three decades of discussion and four or five years of research.”
The General Assembly passed House Bill 8, a comprehensive tax reform effort for the state. Governor Andy Beshear vetoed the measure, but legislators will likely override that veto. The bill aims to lower and eventually eliminate Kentucky’s income tax over time. The measure also included KLC initiative language to clarify that rentals like Airbnb must collect transient room taxes.
Chaney explained that the ability to move House Bill 8 shows a positive energy for legislation like House Bills 475 and 476. “The bigger part of that bill is what they’ve been talking about for a long time: comprehensive state tax reform — a transition away from income tax and expansion of some of the base and sales taxes,” Chaney said. “This dovetails perfectly with that philosophical position that they’ve done for state government. So, the timing could not be more right to get this across the finish line.”
Last week, Senate President Robert Stivers gave House Bill 475 a 50/50 chance of passage before final adjournment on Thursday, April 14. “If you are interested in a consumption-based tax code,” Stivers said, “it would be critical to get this through versus a production-style tax code.”
“You can’t have comprehensive tax reform if you leave city and county governments out of the process when you’re talking about it,” added Meredith. “If we don’t do something to Section 181, you can’t do any kind of real change to the local tax code.”
Meredith said many members of the Senate hear the message. “If we really believe in comprehensive tax reform, we can’t just do tax reform at the state level. It has to involve our local governments too.”