Committee to recommend occupational tax hike and consider new taxes
By JIM BROOKS
Nelson County Gazette / WBRT Radio
Monday, Aug. 3, 2015, 12:10 p.m. — The 2015-16 budget approved by the Bardstown City Council in June is going to require tax hikes, creating new taxes, or a combination of both in order to create enough revenue to meet the city’s current and future budget needs.
That was the message the members of the council’s Finance Committee received during their meeting Thursday at Bardstown City Hall. Larry Green, the city’s assistant administrator, gave the members of the committee an outline of funding needs and possible sources for the needed revenue.
Finance Committee chairman Roland Williams, left, listens as Larry Green, city assistant administrator, discusses options to raise needed revenue. Click to enlarge.
FIRE DEPARTMENT EXPENSE. The council’s decision to move to a fulltime fire department will cost the city an additional $530,000 a year to move from 10 to 17 fulltime firefighters. However Green noted that cities similar to Bardstown in size have an average of 25 fulltime firefighters, therefore the council should expect fire department funding needs to increase as the department expands.
The city’s general fund pays for fire protection, as well as other services that do not generate revenue, which includes police protection, street repairs and recreation. Other city services like sewer, water, garbage, electric, cable TV and internet generate revenue as utilities.
The city’s utilities generate substantial revenue, and for years, the city has used surplus utility revenues to help pay general fund expenses.
Green said there was a question of fairness of doing this because as the city has expanded, its electric service area has not. Only 66 percent of city residents are served by the city electric utility.
By using electric utility revenues to help fund the general fund, these customers end up paying a greater percentage of the general fund expenses than city residents who are served by Salt River Electric or Kentucky Utilities.
Using utility revenues to continue to pay for the growing general fund expenses is sustainable for the long-term, Green explained.
REVENUE OPTIONS. The $8.7 million 2015-16 general fund budget has several sources of revenue, which include: property taxes; occupational taxes; utility transfers; unrestricted reserves (borrowing from utility fund savings); indirect cost allocation; and state municipal aid road money.
There are two new sources of revenue available to the city that it doesn’t currently use — an insurance premium tax and a utility franchise fees. Green told the committee has a number of options to increase revenue by raising existing taxes or establishing new ones.
Green presented the committee with charts showing how the council can raise needed revenue using a mix of sources, old and new with the goal is to reduce or eliminate the need to use utility revenue transfers to fund the general fund.
OCCUPATIONAL TAX. The city’s occupational tax is currently 1/2 of one percent on income earned in the city, capped at $100,000. If the tax was raised to 1 percent and the cap removed, it would bring in an estimated $3.9 million. The move would eliminate the need to use any utility revenue to fund the general fund, and leave a surplus of about $94,000.
If the utility revenue transfers were eliminated, that revenue could be used to keep utility rates from increasing, or used to fund needed utility upgrades.
Increasing the occupational tax rate to .75 percent would raise an additional $1.05 million, not enough to eliminate utility transfers. However, adding a new 5 percent insurance premium tax would raise nearly $1 million and meet the budget need with a $52,000 surplus.
UTILITY FRANCHISE FEE. The city can also create a utility franchise tax that would be assessed city residents who use utilities provided by other utilities — Salt River Electric, KU, LG&E, etc.
For cities Bardstown’s size, Green said that tax would be 3 percent on applicable utility bills, and it would generate an estimated $249,000.
PROPERTY TAX HIKE. According to Green’s estimates, raising the city’s property tax rate to create a 4 percent revenue increase would net $71,200. The city has not taken the allowed 4 percent revenue increase in several years.
State law states that a tax rate that raises revenues more than 4 percent is subject to a recall vote.
LIVING WITH OUR MEANS. Green told the council that suggestions the city live within its budget constraints was tantamount to asking the city to stop growing. “Providing adequate police, fire, recreation and streets services is fundamental to keeping Bardstown and Nelson County a progressive and safe community,” he said.
Instead of cutting services, the city needs to determine appropriate levels of services it wants to provide, and then find the appropriate ways to fund them, he said.
COMMITTEE DISCUSSION. Mayor John Royalty said that the public needs to be informed of what the increased revenues will be used for. “I think it would be logical to let the public know where the money is going,” he said.
Councilman Bobby Simpson noted that the occupational tax was recently revised, generating an additional $800,000.
“We had $800,000 that we needed, and we were going to look at cutting electric rates. What have we done toward that? Nothing,” Simpson told the committee. “The budget went up another $800,000.”
Royalty said the council voted for a fulltime fire department, and the city has to find a way to pay for that.
Simpson said he thought the council should raise taxes to cover the needs, and not find new things to spend tax money on.
“That 800,000, what happened to it? We got it and now we can’t give a rate decrease or fix sidewalks,” he said. “We need to manage what we have, we can’t keep raising taxes.”
Green said the city needs to spend more money to keep growing.
“There’s a limit to what the little old lady who lives up the street can pay if she’s on a fixed income,” Simpson said.
Green said raising the occupational tax is a way to fund more services by taxing those with income and avoiding higher taxes on people on a fixed income.
RECOMMENDATION. After lengthy discussion, the committee agreed to recommend that the council increase the city’s occupational tax rate and remove the existing $100,000 cap. The committee also recommends the council to examine the other revenue options, which include raising property taxes, creating a utility franchise tax or creating an insurance premium tax.
Mayor John Royalty said the city will create a position piece to layout the options and need for additional revenue for the city’s general fund.
NEXT UP. The council will discuss the finance committee’s recommendation at its working session 5 p.m. Tuesday, Aug. 4, 2015, at the city council chambers on Xavier Drive.
-30-
