Louisville Metro Council’s budget committee on Thursday advanced a proposed ordinance to raise the tax rate on most kinds of insurance premiums over the next four years.
The measure is an effort by council Democrats to find a compromise where a mix of cuts to city services and new tax revenue can fill the $35 million budget shortfall looming in next year fiscal year.
The proposed ordinance no longer triples such tax rates to 15 percent within four years — as Mayor Greg Fischer and the five Democratic sponsors first proposed — but has been amended to double them to 10 percent by the 2022 fiscal year.
Passed by a 7-4 vote along partisan lines — with the exception of Councilwoman Paula McCraney, D-7, who voted against it — the amended ordinance closely resembled a plan submitted by ordinance sponsor Councilman Markus Winkler a week earlier, which hoped to find a balance of budget cuts and tax increases that weren’t as steep as the mayor had first presented.
If passed by the full Metro Council next week, the ordinance would raise the tax rate on insurance premiums — with the exception of health and vehicle insurance — from its current 5 percent to 9.5 percent beginning July 1. The ordinance also authorizes Metro Government to raise the tax rate to 9.75 percent in the following years and to 10 percent in the following two years.
Winkler’s plan to add a new 3 percent tax on rental cars wasn’t included in the ordinance passed Tuesday, though he said he would file a separate ordinance to do so on Monday. His plan to slightly raise the tax rate on vehicle insurance premiums two years from now was also missing.
In the Democratic caucus meeting before the budget committee advanced the ordinance, Winkler said the two different tax increases would raise over $20 million next year, which means that Metro Council would have to find $15 million to cut from next year’s city budget.
Fischer will release his proposed budget for next year in April and the council must pass a budget before July, where those specific cuts must be identified.
Winkler also explained that the absence of a slight increase to the tax rate on vehicle insurance premiums in 2021 would mean that the city would have to come up with $25 million in additional cuts by 2023.
Under the proposed ordinance, the new tax revenue would be placed in a special account dedicated to meeting the city’s increased pension obligations. It also calls for the council to request for the state attorney general to investigate inflated insurance rates in lower-income areas of Louisville and to encourage the Kentucky General Assembly to provide the city with additional methods of raising revenue, so that it can revisit the insurance tax increase and pursue alternative options for revenue.
Tuesday’s vote follows scores of special public meetings on the issue since Feb. 7 when Fischer first warned of “devastating cuts” to city services and massive layoffs that would have to take place if the city did not find new revenue to plug a $65 million hole within four years.
The mayor has pegged the crisis on Frankfort, blaming the Kentucky Retirement Systems for mandating rapidly increasing the city’s pension payments for local workers and limiting the ways in which the city can legally raise tax revenue.
Republican council members and several Democrats criticized Fischer for blindsiding them with the issue in February, and have since accused him of hyping a fake crisis with “scare tactics” in order to raise taxes when the budget shortfall could be achieved with cuts alone. While Republicans have indicated they would release a plan identifying specific cuts that would avoid public safety and libraries, no such plan has been released to date.
Councilman Kevin Kramer, R-11, the chair of the Republican caucus and vice chair of the budget committee, has indicated that none of his party’s members would vote for any tax increase. That means that in order to gain the 14 votes needed to pass next week, the ordinance cannot have more than five of the council’s 19 Democrats voting against it.
The budget committee voted through the ordinance with very little discussion, as only McCraney explained why she was voting against the measure. Saying that the council should not be rushed to “tackle a four-year problem in one sitting,” she said that the council should take the time to identify more cuts “beneath the surface” before raising taxes.
McCraney’s advocacy of a one-year plan that focused only on cuts for next year resembled the argument made by Councilman Brent Ackerson, D-26, in the party’s caucus meeting beforehand. In previous meetings of the Democratic caucus, council members Barbara Shanklin, Donna Purvis, Jessica Green and David Yates have expressed skepticism toward tax increases.
After the vote, Hollander said there has been more compromise on the tax ordinance than anything since he joined the council in 2015, as “we have tried very hard to accommodate everyone’s concerns.”
Hollander also repeated that a 10 percent tax rate on insurance premiums is not out of the norm in Kentucky, as the rate is equal or greater than that amount in Oldham County, Owensboro, Shively and much of northern Kentucky.
Winkler said that the remaining cuts needed after the tax increase would still have “a dramatic impact” on city services, adding that “if anybody believes that we’re going to find (cuts) and not notice, they’re mistaken.”
In his plan released last week, Winkler identified several areas of city government that the council may have to cut in order to come up with $15 million, including hiring freezes, furloughs and salary cuts for city workers.
Winkler said that Republicans referred to potential cuts last week that could fill next year’s budget hole, but those “only amounted to $10 million,” which he said is the number that most people come to “when they’ve independently sat down, gone through the budget and said ‘what can we realistically cut.'”
Mayor Fischer released a statement after the vote Thursday night, telling the council he is willing to work with them “on a reasonable solution” to find government efficiencies, but warning that they must raise enough revenue to avoid dramatic cuts that could reverse the forward momentum of the city.
As the ordinance stands now, the mayor said it could still lead to “cutting back on police officers, fire stations, ambulances, and other public safety needs,” in addition to reducing road paving, closing libraries, health clinics and community centers, and eliminating programs fighting homelessness and the opioid epidemic.
“Council must be very clear on which cuts they believe are acceptable to fill the shortfall this ordinance creates, and my priority will be to limit the impact to services that help our residents,” said Fischer. “Over the course of the next 7 days, I will work tirelessly to urge Council to amend the ordinance to provide more funding for needed services.”
This story has been updated.