In early June, I was among the 275 who traveled to Austin, Texas, for the 69th annual Commerce Lexington Leadership Visit.
Each of us returned with our own impressions and even a few inspirations. The following is an account of a serious economic challenge
now confronting Austin and how Lexington and other Kentucky cities might avoid similar fates.
The Austin experience was nothing if not a cautionary tale about the paradox of a city that has become so exquisitely attractive to some of the nation's most innovative talents in the arts and high technology that the resulting population explosion now threatens to price many of these very same "creatives" out of the market. There is serious concern that with downtown development now in full boom, Austin's storied music venues - the essence of its identity - will begin going dark as leases come up for renewal and tenants are faced with increased rates.
Although we already have a minor problem in this regard, Lexington does have the advantage of being in the early stages of downtown revitalization, and that gives the city a unique but fleeting opportunity to figure out a solution before we wind up in Austin's situation.
Success in revitalizing downtown Lexington requires finding a way to bridge an affordability gap in the district's commercial lease rates. The current average for class A downtown rental space is $17 per square foot (NAI Isaac); yet, by most accounts, the typical, locally owned small business can handle no more than $8 to $10 per square foot - music venues, which operate on even thinner margins but must meet stringent public safety and sound-oriented code requirements, can afford even less.
No one should begrudge the developer for anticipating a reasonable return on a risky investment. Just the same, by failing to ensure that new street-level commercial spaces now appearing downtown are brimming with viable businesses, we invite the perception that downtown Lexington is just too expensive for the typical locally owned independent business to make a go of it.
We have little in the way of options to turn to as a resource for funding any subsidy program specific to downtown. Drawing from the city's general fund to support downtown startups surely would invite heated opposition from suburban taxpayers. In any case, before you even get around to discussing the creative use of public revenues, the '09 LFUCG budget is a poster child for tightrope walkers.
One solution might be the "self-serve" approach: the application of a sales tax on transactions occurring within a defined downtown district and designated specifically to fund a program of low- or no-interest loans and grants.
The problem is, it can't be done.
Kentucky's constitution severely limits the ability of local communities to address their own unique needs with their own dollars. As a result, the state's major economic engines - its cities - are crippled as they attempt to prop up Kentucky's competitive posture.
As Kentucky League of Cities executive director and CEO Sylvia Lovely noted in a column for Business Lexington, "Our local communities currently have only three ways to raise general revenue under provisions of the state's 1891 constitution that remain in effect: occupational, property and insurance premium taxes. While these three options are used in most Kentucky communities, the needs of each community are very different. Without additional options, cities with diverse global competitive needs will not be able to reduce the burden of these three taxes, nor will they be able to address the increasing demand for quality of life projects."
Lovely went on to suggest as a possible solution amending the constitution to allow local communities to enact their own sales taxes. "In fact," she noted, "all southeastern states except West Virginia and Kentucky have some type of local option sales tax or general revenue sharing."
Such a source of revenue, she suggested, could be structured to take effect only if local voters authorized the amount of the tax for a specific project or program. A deadline or "sunset" could be established by the same referendum, and once that project was paid for or the deadline arrived, whichever came first, the tax would be retired.
It was done successfuly in Oklahoma City, where business leaders took charge, recognizing a defined and targeted sales tax as a community's investment in its own improvement and progress. Oklahoma City voters twice approved short-term sales tax programs to first pay for the revitalization of the city's downtown followed by the complete and total renovation of Oklahoma City's schools. In each case, the sales tax disappeared after the specified deadline passed, the projects completed on schedule and within budgets.
Such an option could make all the difference in how things turn out for our city center. Will we make it an interesting and profitable environment for the "character" businesses that are what "local" is all about? Or will we wind up with more of the same?
We call on the Fayette County legislative delegation to pull together as a united front in support of a local option constitutional amendment.
As a city, we have needs. And like Nike, we want to "just do it." Ourselves.
Self-sufficiency is a great thing, especially when it results in a city center that is a profitable and fun place in which to be.
We call on legislative leadership in Frankfort to cease the chronic mutual obstructionism that has impeded just this sort of progress in Kentucky and give our cities the opportunity to take responsibility for their futures.
Mindful of the lessons of Austin, Texas, give our cities a break.