Lexington, KY - Lexington Mayor Jim Gray and Louisville Mayor Greg Fischer are embarking on the development of a coalition of fellow city and county officials, along with their respective business communities, to pitch a constitutional amendment to allow for local option sales taxes in Kentucky. Such an amendment would allow localities in the state to seek to enact their own sales taxes to fund local initiatives, contingent upon the approval of — in the case of Lexington — the Urban County Council and the voters of Fayette County.
“It’s essential for a business or city to be examining its cost basis and at the same time invest in its infrastructure,” Gray said.
And other cities are doing just that, according to Fischer.
The Louisville mayor told a group on Commerce Lexington’s regional tour late last year that 88 of the 108 American cities with populations above 200,000 have the ability to ask their citizens if they are willing to take on a tax to finance public projects or programs. Despite the fervent anti-tax feelings leading into the 2012 elections, Fischer told the group in a joint session with Gray, that 68 percent of local option measures appearing on ballots nationwide during the recent general election were approved.
“This is a way to keep dollars in the area, to come up with a diverse slate of projects that sync up with the long-term plans of the community and get voted on by the people,” said Jeff Bringardner, chairman of Greater Louisville, Inc., and the Metro Chamber of Commerce, and the Kentucky market president of Humana.
“We’ve seen other communities take on projects in … their community and they prioritize the needs of their community and they look across generations and they look across socioeconomic status. They look across the geographic needs in their communities … and they come up with a set of priorities that can be supported through a local option sales tax,” he said.
One city cited by leaders in both Lexington and Louisville is Oklahoma City. Both chambers of commerce have visited the Sooner State’s capital in the past six years to examine the improvements it has made through investment in infrastructure. In 1993, city leaders pitched a term-limited one-cent sales tax for specified capital projects that would be paid for in cash after the revenues accumulated. The tax represented an additional two cents for the purchase of a typical $2 cup of coffee. Through those pennies, $309 million was raised in Oklahoma City, a city with a U.S. Census population of 444,719 in 1990. That revenue earned an additional $54 million in interest while on deposit, which also was used to finance construction.
“As a result of the original proposal, Oklahoma City’s Bricktown, with its canals, restaurants and hotels, is the most popular and lively entertainment district in the region,” Oklahoma City’s Mayor Mick Cornett wrote this summer in a column for the Huffington Post website. “The river — formerly a ditch that we had to mow from time to time — is now filled with water and hosts a world-class, U.S. Olympic rowing training center. The ballpark is home to the Houston Astros’ AAA team, and the indoor sports arena is home to the Oklahoma City Thunder, one of the most successful franchises in the NBA and certainly the hottest ticket in town.”
In 2001, Oklahoma City leaders went back to voters and asked to renew the one-cent tax. The revenue collected by the tax renewal would be used for the building or renovation of schools in the city, more than 100 other school-related projects and needed technology upgrades for the system.
In 2009, voters again chose to keep the penny tax in place, this time financing a 70-acre central park featuring a lake, amphitheater and restaurant; a new streetcar system; a new convention center; 57 miles of new public bike and walking trails; a public whitewater kayaking facility and upgrades intended to create the finest rowing racecourse in the world; a system of health and wellness aquatic centers throughout the city designed for senior citizens; and more.
According to Cornett, the city came to the decision to go after projects like this when a major employer chose not to locate in Oklahoma City, based purely on quality-of-life concerns. When it comes to economic development, Fischer and Gray know that issue is their toughest challenge.
“When people make a decision about where they’re going to invest, they don’t talk about taxes. They talk about quality of life. They talk about schools, parks, cost of living. They’re looking for a place where they and their employees are going to be able to make a life and enjoy living,” said Mary Ellen Wiederwohl, Fischer’s deputy chief of staff and chief of strategic initiatives.
“Because of the way the tax structure is now and the commitments that we have, those types of big investments in the community that are going to maintain our quality of place … aren’t going to come from the general fund. Our general funds are starved,” she said.
Lexington and Louisville do pitch site-searching companies on the quality of life in their cities. International law firm Bingham McCutchen cited the activity and diversity in Lexington’s downtown as a major contributing factor to bringing their Global Services Center and at least 200 jobs to the city starting in April. And Louisville was rated the best place in the United States to visit in 2013 by Lonely Planet.
But Wiederwohl knows there is more the cities can do if given the tools.
“One of the things that people talk about is that Louisville and Lexington are the economic engines of the state … We embrace that; [just] give us the chance to go get some gas money for our engine,” she said.
A Blue Ribbon Commission led by Lt. Gov., and former Louisville mayor, Jerry Abramson, recently included a local sales tax option in a bevy of recommendations to overhaul the state’s antiquated tax code. But one state budget office official calculated there would be a cost to the state beyond the extra cost of goods for its citizens.
Greg Harkenrider, acting deputy executive director for policy research in the state budget office, told the commission he estimated a negative $10 million impact on state tax revenues, as the elementary laws of economics say a decrease in demand would be predicated on any increase in cost, no matter how slight.
“Personally, I want to question the $10 million statement on the local option sales tax,” Abramson said to the board following Harkenrider’s statement. “Even if it is $10 million, we’re not talking about an immediate $10 million. We’re talking way down the pike. And I’m not sure I buy — with all due respect — I’m just not sure I buy that costing us $10 million,” Abramson said.
Harkenrider relented, saying an increase in activity and construction in an area could cancel out the overall impact.
“If you adopt a sales tax for the erection of a new facility or something like that, well, then obviously construction activity will pick up. Other activity will pick up, and that will have a dynamic impact on economic activity, which would probably more than offset any loss in the state sales tax,” he said.
Abramson argued that the impact on the state’s nearly $10 billion annual budget would be spread out over time.
Under the currently envisioned local option sales tax plan, 60 of the 100 members of the Kentucky House and 23 of the 38 members of the Kentucky Senate would have to vote in favor of a constitutional amendment that would then be placed on the ballot for a final decision by voters, with November 2014 being the earliest that could occur. If approved, localities interested in taking advantage of an option would then be required to seek approval of their city councils or fiscal courts. Voters would have the final say on any proposed sales tax-funded project.
A campaign to influence public perceptions has already begun with the use of the acronym LIFT — Local Investment for Transformation — that Mayor Fischer has been using in place of “local option sales tax.”
We’re at the beginning,” Wiederwohl said. “I’m a runner. This is a marathon; this is not a 5K we have signed up for here.
“The ‘t-word’ can be scary. Even for the most liberal Democrat, ‘tax’ is a scary word. I’ve really been impressed and heartened by the response from people when you get a chance to sit down and talk with them about what other cities are doing and how we’d do it,” she said.
Commerce Lexington President Bob Quick said he’s noticed the same progression in his discussions.
“I’ve talked with a lot of people who, their first thought is ‘hell, no, it’s another tax,’” Quick said. “But when you throw in the caveats of it — that it’s got to be infrastructure only, it’s got to be voter referendum, it’s got to also have a sunset — it’s amazing how they look at it differently. And I don’t know if I’ve had anybody then go against it.”
But Quick hasn’t been too eager to push it yet, either.
“Commerce Lexington has not taken any official vote at this point,” Quick said. “There’s not really anything laid out saying what it is. We’re talking about what we think it ought to be and most likely what it will look like, but we have not had any vote on it.”
Quick said he’ll take it to his board for a vote “when the issue starts to resonate. Our No. 1 issue right now is pension, and we cannot allow anything to get in the way.”
And that’s not lost on Gray, Wiederwohl or GLI’s board chair. They seem to have accepted that the local option proposal is unlikely to pass in the legislature this year.
“Some extra polling will need to be done of the business community and the people of the commonwealth, and that will help develop strategy and discussion for the legislature,” Bringardner said.
One of the main debates will revolve around what the local option cannot be. All involved want to make sure it has to be subject to local referendum, specified for a project, and mostly likely with a cap, so that the full price of big-ticket consumer items such as cars wouldn’t be subject to the tax. And it would have to “sunset,” meaning that the tax would no longer be in effect after a predetermined date. So in essence, an approval by the legislature wouldn’t actually raise taxes; it would allow citizens to decide locally what special projects they think are worth paying for.
That’s an opportunity Gray likes.
“If I or anybody else proposed a project to apply the sales tax toward, we should have to work hard to demonstrate to the public that it is real and meaningful and provides for economic growth and opportunity,” he said. “That’s the real value; it makes whoever’s proposing it [come forward with a strong plan].”
Wiederwohl said there are a lot of business fundamentals in a plan that uses strategic investment to grow an economy.
“This is basically a business proposition,” Wiederwohl said. “This isn’t just a tax.”