We keep doing it to ourselves. Year after year, scores of Lexington’s business and civic leaders put their phones and emails on auto-reply for a few days and fly off to see how some other city has managed to do something incredibly well. Upon return and reflection, we consistently long to see many of these successes materialize here in our own city, only to eventually realize that we have no way to pay for them.
This is not a criticism of the chamber or this annual event, now into its seventh decade. The trips are skillfully planned and organized, educational and are well worth the time and expense. And it’s not a criticism of our city. Lexington truly is one wonderful place — as is.
These are not the issues.
The problem is what we discover on these excursions, time and again: cities that have the kinds of amenities that we seem to covet are willing and able to pay for them. Many have done so by levying a term-limited, project-specific, referenda-driven local sales tax.
In fact, 38 states authorize local option sales taxes, freeing their cities to fund their own community-specific projects, on their own dimes.
Under Section 181 of the Kentucky Constitution, none of Kentucky’s cities is authorized to pay its own way by this means. Instead, we are held hostage to the persistent political dysfunction and rural-versus- urban discord of Frankfort.
Nobody “likes” to be taxed. But there also is no such thing as a free lunch.
Lexington’s bonding capacity is, these days, either maxed or close to it. Our city’s operating budget is stretched thin. We have an enormous and ever-growing police and firefighter pension liability that, if allowed to continue as structured, could absolutely bankrupt the city. We are shouldering the equally enormous burden of bringing our sewage systems into compliance with the Federal Clean Water Act. We need police, firefighters, clean water and a functioning municipal government. These things are fundamentally essential to our well-being.
The rest, the envisioned capital improvements you hear so much about — a Rupp Arena Area Entertainment District; renovation of the old Fayette County courthouse; or a water feature based on Town Branch, for example — fall into the categories of economic development and quality of life. But as you weigh our fiscal limitations against these aspirations, you begin to see the stark, unforgiving reality of our priorities.
We might turn to the private sector in search of potential financing for some of these projects, but business rightfully looks for something in return. Such as naming rights. Would you be willing to relegate “Rupp” to history in favor of a renovated or new arena in downtown Lexington that bears the name not of the celebrated University of Kentucky basketball coach, but of a corporation?
Maybe. Maybe not. We need to decide as a community what we need and whether we will pay for it — own it — or turn our public amenities over to private interests.
A third option is to accept things as they are.
Doing nothing was not an option for Oklahoma City, destination of the 2006 Commerce Lexington Leadership Visit.
Faced with being bypassed by the site selection team of a major employer, a stung Oklahoma City engaged in serious introspection, got real about its weaknesses — including a corrupt, largely inept municipal government, a near vacant downtown and a decaying public schools infrastructure — and got busy. As the result of an awareness campaign undertaken by the business community, elected officials who had driven the city into the ground were voted out of city hall and succeeded by a fresh crop of visionary and determined leaders drawn from Oklahoma City’s business and civic communities.
In 1993, this new leadership persuaded voters to approve the city’s Metropolitan Area Projects (MAPS) program, a limited-term capital improvements initiative financed by a half-penny to one-cent sales tax, depending on the phase (there have been three, so far). Not only are the Oklahoma City projects built debt-free, the first phase ended up earning $54 million in interest that was applied to projects.
MAPS II financed much-needed improvements and new construction for Oklahoma City public schools.
The most recent phase, MAPS III, began in April 2010 and is slated to be completed, its funding sales tax retired, in December 2017. This latest local voter-approved initiative is expected to raise about $777 million.
Among the public projects slated under MAPS III: a new $280 million downtown convention center to attract larger conventions and bring additional revenue into the local economy; a $60 million makeover of State Fair Park; $60 million for a public whitewater kayaking facility and upgrades intended to achieve the finest rowing race course in the world; $10 million in new sidewalks along major streets and near facilities used by the public throughout Oklahoma City; a downtown rail-based streetcar system with six miles of track; a 70-acre downtown public park; 57 miles of new bike and walking trails and $50 million for a network of state-of-the-art health and wellness aquatic centers, designed specifically for senior citizens, located throughout the city.
This pay-as-you-go approach, which shifts a significant portion of the local tax burden to non-residents while placing some taxing and spending decisions closer to local citizens, has allowed Oklahoma City to build fine facilities without passing along the burden of debt to future generations and city leaders. You see this and you can’t help but imagine how such things would enhance life and prosperity in Lexington, Kentucky.
There are, however, devils in those details, as well as risks to consider.
First, size. Oklahoma City and its surrounding county are about five times the size of Lexington-Fayette. For Lexington to achieve the same level of public financing of its projects on a similar timetable would require a far higher sales tax, tacked onto the existing 6 percent state sales tax.
Discussing local option taxes on its web site, the National Conference of State Legislatures (NCSL) notes, “The expansion of local taxing authority can have important implications for individual taxpayers, businesses and the economy, with key policy issues that legislatures may need to consider when determining whether to grant additional taxing authority to local governments.”
There is, for example, a history in Kentucky of local and state government budget planners reacting to new revenue streams such as a tax or federal stimulus by abandoning such projects, redirecting the previously allocated funds into other areas of government.
And layered on top of today’s deeply partisan party-driven politics, is the additional divisiveness of rural versus urban interests. Historically, rural legislators have blocked such an initiative because “It’s for Louisville and Lexington only; How is this going to help Irvine, or Ravenna, or Sand Gap?”
The NCSL notes that a local sales tax can limit a state’s flexibility to raise tax rates to pay for essential programs in the future. And it could drive a competitive wedge between the Lexington-Fayette Urban County Government and other municipal local governments in central Kentucky.
Retailers in the adjoining counties might take advantage of the incremental tax differential in their promotions, which in time could brand Lexington as a higher tax area and dampen retail sales across the board.
A local sales tax would combine at the cash register with the state’s six percent sales tax. Consider the potential impact on Lexington and Fayette County retailers — especially those selling durable goods like cars and appliances. That additional one percent might not be noticed by a couple out for dinner with a $50 tab to pay, but it could mean quite a bit to the discerning car buyer who may elect to visit a dealership in an ad- joining county to avoid the $300 additional tax on a $30,000 car.
All are possible.
Could a MAPS-like taxing plan pay for the public projects Lexington and other Kentucky cities envision, but are not sure how to fund? The answer now and for the foreseeable future is no. Our constitution does not permit it.
Discussion about whether the time has come to change this is now underway. Gov. Beshear’s Tax Reform Commission is an appropriate forum for this conversation.
“Right now, everything is on the table, and the Commission is willing to hear any ideas,” noted Terry Sebastian, spokesman for Lt. Gov. Jerry Abramson, who is chairing the commission.
Our Burning Question feature addresses the issue, asking, “Should the Kentucky Constitution be amended to authorize cities to enact a local sales tax to finance capital improvements? ” We solicited responses from a variety of Lexington business and political leaders. The intention is to get us all talking about the pros and cons and to ultimately answer the question: If you believe Lexington should improve on itself by building structures and features for all to use and enjoy, how do we pay the bills?
We hope you will scroll to our comments section below and offer your thoughts. We look forward to hearing from you.
Note: we moderate our comments with the aim of facilitating a civil, thoughtful conversation about the issues that matter to us here in Lexington, Kentucky.
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