Sales Tax Option for Cities & Counties Advances in Frankfort but Local Officials Concerned

A Kentucky House of Representatives committee approved on Tuesday a proposed local option sales tax constitutional amendment that, if approved by the state’s voters, could help cities and counties fund local building and infrastructure projects.

On Monday night, Newport Mayor Jerry Peluso and City Manager Tom Fromme expressed concerns about the idea.

House Bill 1, sponsored by House Speaker Greg Stumbo, D-Prestonsburg, and House Minority Leader Jeff Hoover, R-Jamestown, was approved Tuesday morning by the House Elections, Constitutional Amendments and Intergovernmental Affairs Committee. It now goes to the full House for consideration.

If passed, the bill would place a constitutional amendment on a statewide ballot allowing state lawmakers to give local governments the power to levy up to a penny of local option sales and use tax for specific projects with local voter approval. The tax would be eliminated when the project is paid off.

“It’s fairly simple,” said Stumbo. “It allows local people to choose whether they want to be taxed. It allows them to make the decision and dedicate the funding sources to a particular project. When the bonds are satisfied then that particular tax goes away.”

"This really benefits Lexington and Louisville or maybe Covington," Fromme said Monday, but not Newport, he said. Cities would have to launch a series of engineering and construction reports and then a public relations campaign to gain approval for a particular project, the city manager argued, and that costs money. "I don't see where it's cost effective."

No member of the Northern Kentucky Legislative Caucus has signed on as a cosponsor. Danville Republican Mike Harmon filed two amendments to Stumbo's bill, one prohibiting any of the potential proceeds from being used to promote a capital project and another to require a quarter of the proceeds to offset another local tax currently in effect.

Thirty seven states currently allow local governments to use a local option sales tax for local projects, according to HB 1 cosponsor Rep. Tommy Thompson, D-Owensboro.

Harmon questioned language in the legislation that would allow any “residual payments” collected by local governments from the local option sales tax after the levy expires to be used for maintenance of the project.

“To me, that sounds like a clause that says this tax never ends,” said Harmon.

Louisville Mayor Greg Fischer’s representative Sara Massey said the tax would be temporary and that language in the legislation that Harmon questioned deals with late collections coming into local governments after the levy has expired.  The funds would not be allowed to go into the state General Fund, according to the proposal.

Fischer – a supporter of the tax option, known in Kentucky as LIFT (Local Investments in Transformation)—said revenue tools available to local governments in the state today are fairly limited.

“As we looked around the country, we saw these (options) were very popular,” he said. 

Former Kentucky Secretary of Commerce Jim Host penned an op-ed that ran in The River City News in November asking the community to support the local option sales tax. "In the past Kentuckians have sent their hard earned tax dollars to Frankfort and statehouse leaders, through the budget process, have decided which projects get funding.  Local communities crossed their fingers in the hopes the project they were counting on got the greenlight," Host wrote in November. "The local option sales tax is a new way for communities to see the projects they want and need get from the drawing board into the real world – and to do it for themselves."

Covington Mayor Sherry Carran expressed support for the idea last year while most local legislators said that they would oppose it. At the Northern Kentucky Forum in January, State Rep. Dennis Keene (D-Wilder) said that he had not received a single phone call about the issue.

Campbell County Judge-Executive Steve Pendery spoke in favor of the local option sales tax in December.

Meanwhile, in Newport, Fromme said he would be more supportive of the idea if local property taxes were removed. Renters would pay more of their fair share for city services that way, said Fromme, who served as police chief in Newport for 15 years. "That's just the reality. The rental units create the biggest calls for response."

Newport Mayor Jerry Peluso also said that he was unclear on what exactly the specific legislation would offer cities. "I don't believe they've explained the mechanics of the legislation or what can or can't (be built)," he said Monday night. In November, in response to Host's op-ed, Peluso commented, "Why would one city vote yes for a project in another city in that same county? This whole idea needs a complete explaination and understanding. Sounds good for one community maybe not for another."

-Written by Michael Monks in Newport with notes from Frankfort by the Legislative Research Commission and additional comments from The River City News archives