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Kentucky cities need greater local-option tax authority

By RON SCOTT
Danville City Manager

Year after year, surveys show the majority of people view local government as the level of government most responsive to their needs when compared to the state or federal government.  This is no small accomplishment given the fact that local governments have a more limited capacity to generate revenue than state or federal governments.

Local governments are invariably “between a rock and a hard place” of revenue constraints, escalating costs, new unfunded mandates, and greater demands for service from the public. Those factors create greater challenges when the local economy is not significantly growing. The challenge is significant except in a booming economy.

Local governments, despite receiving high marks from the public on being responsive to their needs, find it increasingly difficult to continue to provide even basic services, primarily due to limited revenue growth and few available revenue sources.   

Some current examples of difficulties for local government in funding local needs include:

the need to build a new downtown fire station and equip it with a new hook and ladder truck to replace the existing 25-year-old fire truck and an even older fire station; 

the need for new revenue to enlarge our county jail to address overcrowding issues and related law enforcement issues;

the need to build a new swimming pool to replace the existing 30-year-old pool/facility;  

the need to upgrade the existing sewer treatment facility to meet emerging future standards and provide greater capacity for future business and residential growth;

other infrastructure improvements such as water lines, road paving and sidewalk construction;

funding programs and incentives to attract business to generate local economic growth;

funding for the prevention and treatment of drug abuse;

funding to be more competitive in attracting and retaining staff to provide services; and 

many other needs, both in local government’s general fund and its utility funds.  

I invite you to consider and fully accept the idea that local governments need more local revenue options that will provide local governments with both the necessary revenue growth as well as the financial flexibility to meet local needs. Many of these local needs — either yours or those of your neighbor — will, if unmet, directly affect your quality of life, now or in the near future. 

Federal and state governments do have greater financial resources than local governments, with local governments constrained by state law on how they may raise revenue. In recent years, the state legislature to its credit has generated a number of ideas that would promote greater ‘fiscal fair play’ between the state and local governments, giving local governments a greater financial ability to meet local needs.  

The Local Option Sales Tax, which would require amendment of the Kentucky Constitution if and when passed by the Kentucky General Assembly, was one recent proposal introduced by members of the Kentucky General Assembly. A less comprehensive approach is the Local Option Restaurant Tax (SB 166), introduced during the 2016 Kentucky General Assembly by senators Jared Carpenter (Berea) and Paul Hornback (Shelbyville). While this didn’t pass during the last legislative session, it is an idea that will most likely again be considered in 2017.  

SB 166 or a close version of it should be enacted  by the 2017 Kentucky General Assembly in order to give all of Kentucky’s local governments the future option of then enacting a local restaurant tax to generate additional revenue to meet local economic development needs.

If this does not occur, community development will be slower in local governments, as will be the desired economic development in our local governments and the Commonwealth itself.

Ron Scott is the city manager for Danville. In a future article, Scott plans to describe how the local option restaurant tax, as drafted in 2016, would benefit restaurant owners, tourism, and local economic development efforts.