Lexington and Louisville Mayors Jim Gray and Greg Fischer are calling for an amendment to the state constitution, authorizing a local option sales tax to finance capital improvement projects in Kentucky’s cash-strapped cities.
Both mayors favor strict dedication of revenues raised from such a tax to specific projects, transparency in project budgeting, completion schedules and taking each proposed project to voters for a thumbs up or down.
“I believe voters deserve the chance to decide whether they want to invest in their city,” said Lexington’s Gray. “It’s about having the option to invest in ourselves and I’m for that.”
Louisville’s Fischer raised the issue before a town hall meeting of Gov. Steve Beshear’s Tax Reform Commission.
“The commission needs to look at some city tax issues as well as state tax issues,” he said in an interview with Business Lexington. “I talked about two different sales tax issues. One is that, in order to have better diversification of tax revenue at the city level, that some type of sharing of the state sales tax at the city level would be beneficial to even out the ups and downs of city tax revenues. The second issue was, in order for our cities in Kentucky to stay competitive, we need to have the local option sales tax as well. Thirty-eight states have that option for their cities. Kentucky is one of the 12 that do not. It puts us at a competitive disadvantage when we’re looking at ways to grow our cities.”
Under Section 181 of the Kentucky Constitution, none of Kentucky’s cities is authorized to raise local revenues to finance local projects. Fischer said that de facto prohibition of a local option sales tax leaves the state’s largest urban areas at a disadvantage.
“We generate $2.4 billion in tax revenue to the state per year. And we receive back $1.2 billion in tax revenue. So we’re helping to support quite a bit of the rest of the state, which is fine,” Fischer said, “but at least give us some options so that we have some control over our destiny and ... can compete effectively with the Austins, the Chicagos and Denvers.”
Terry Sebastian, a spokesman for Lt. Gov. Jerry Abramson, Fischer’s predecessor as Louisville mayor and chair of the commission, would say only that the commission is listening. “That is where the focus is right now, so we aren’t commenting on any specific idea or proposal. That will all be outlined in the final report to the governor,” he said.
Some have raised concerns that any new local tax would end up being diverted into a city’s general fund, the revenues used to finance government operations, and once enacted, the tax would remain forever.
“The last thing you want to do is to have this perceived as some kind of sneak attack to have taxes raised on a permanent basis,” Fischer said. “That is not what this is about at all. This is about a community buying into a vision for specific projects with specific payback schedules so the tax would go away after time. So, let’s say, for example, that we need a forensics crime lab that costs $30 million; that would require a half-cent sales tax increase that would be over in six years. So it’s a specific project with a specific time line, and the voters in that locale would vote on that.”
Fischer cites Oklahoma City as a primary model. He will join 100 Louisville civic leaders in a chamber of commerce trip to the Oklahoma capital in October.
“We’ll be seeing how they’ve used the local option sales tax to build an arena, which eventually became home to the Oklahoma City Thunder; how they’ve rebuilt their schools; how they’ve built an Olympic training facility on their river. Their voters had an opportunity to take a look at each one of those and said ‘yes.’”
The Lexington and Louisville mayors noted that their cities are facing fierce competition from across the country in attracting and retaining businesses and talent. They’re urging citizens to think of local sales tax, typically a half-penny to one cent on the dollar, as an investment.
“It’s like having a factory that’s 50 years old,” said Fischer, “and you’re competing against companies that are investing in their facilities, and you’re acting like, ‘We don’t need to invest and we’ll be just fine.’ No, you’re going to go out of business. So we’ve got to have ways to invest,” Fischer said.
Gray, himself a leader in Kentucky’s construction industry, agrees. “Just like any good business, cities deserve the flexibility to make investments that can help them grow and prosper.”
In an online poll conducted by Business Lexington, 72 percent of respondents favored amending the state constitution to authorize cities to enact a local sales tax to finance capital improvement projects. The poll also showed that 63 percent believe the enactment of a local sales tax should be subject to referenda. Asked if a local sales tax should be dedicated to specific projects, 63 percent answered “yes,” and 60 percent said such a tax should be term-limited.