FRANKFORT, Ky. (AP) - Local governments would have more latitude to raise tax revenue to meet demands for services under a proposed constitutional change advanced by a House panel Thursday.
The measure, if added to Kentucky’s Constitution, would ease tight restrictions on the types of taxes that city and county governments can levy to meet their obligations.
Supporters included groups representing city and county governments. Current restrictions, they said, force local governments to rely heavily on property taxes and taxes levied on wages and business income. The outdated system puts Kentucky’s communities at a competitive disadvantage in trying to attract new businesses, they said.
“This is an opportunity to think big and to think bold about how we move forward,” said Republican Rep. Michael Meredith, the bill’s lead sponsor.
The measure is opposed by the Kentucky Retail Federation, which warned that the constitutional change could lead to new sales taxes that it said would hurt consumers and retailers.
The proposed constitutional amendment easily cleared the committee and now goes to the full House, where more than half its members are co-sponsoring it. They include Republican House Speaker David Osborne and the chamber’s top-ranking Democrat, Joni Jenkins.
If the proposal clears the GOP-led legislature, it would go on this year’s statewide ballot for voters to decide. Voter ratification would be the first of a three-step process to update the tax code for local governments, Meredith told the committee.
The legislature could follow up by considering a new taxing framework giving local governments more flexibility in deciding which taxes to assess.
“That’s when the hard work is really going to begin,” Meredith said. “But we don’t even have an opportunity to really look at doing the hard work until we uncuff the General Assembly’s ability to make some changes and create that new framework.”
The final step would be at the local level, where city and county governments would set tax policy.
Many cities rely heavily on occupational taxes to meet growing demands for municipal services and to cover other costs, including pensions, said J.D. Chaney with the Kentucky League of Cities. The amendment would allow lawmakers to redesign the tax system to give local leaders more flexibility, he said. But the legislature would retain its preemptive authority, he said.
“This does not create the Wild West of taxation,” he said.
Republican Rep. John Blanton, a bill co-sponsor, said property tax rates are high in his eastern Kentucky area because local governments have no other choice to find revenue.
“We have nowhere else to turn,” he said. “And we’re not able to provide the services based on that right now. We have to have options, and we currently do not have options.”
The bill drew opposition from the Kentucky Retail Federation. Its chairman, Kevin Cranley, warned that it could lead to a “massive expansion” of consumption-based taxes by local governments.
“City and county governments already tax Kentuckians where they live and where they work,” Cranley said. “Now we’re going to tax them where they eat, where they play and where they shop.”
It also could lead to a patchwork of tax policies that could spur some people to look for lower tax rates in other cities or counties, he said.
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The legislation is House Bill 475.
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