Louisville Mayor Greg Fischer and council members defended tax hikes in response to the pension bill, listing public safety cuts as alternative Alton Strupp, Louisville Courier Journal
Tax hike or no tax hike, the vote Louisville Metro Council takes Thursday night on revenue to fill the budget hole will have ripple effects for years to come.
Residents could see higher insurance bills,Ā reductions in city services across departments or a combination of the two, depending on how the council vote on the revenue-generating ordinance goes.Ā
Council members have spent about five weeks brainstorming, debating and gathering input. But at Thursday’s council meeting, they’ll be forced to come to a decision, ahead of a strict insurance department deadline for the tax increase.Ā
It looks unlikely that Mayor Greg Fischer’s full insurance premium tax, which would triple the current 5 percent tax to 15 percent over four years,Ā has the votes.Ā
A more modest proposal to double the tax and find $15 million in budget cuts for the upcoming budget, with more cuts to come, needs 14 members to support it. It’s unclear if supporters will be able to reach that threshold, as the Courier Journal reported Wednesday.Ā
The latest: Louisville insurance tax hike compromise in jeopardy ahead of deadline
Floor amendments to the ordinance are possibleĀ and could tweak the level of the tax.
Should lawmakers not pass any insurance premium tax hike by the end of the week, they’ll lose the chance to levy it until July 1, 2020.Ā
That would leave a $35 million hole in the upcoming budget, which they would have to fill by finding savingsĀ ā likely after Fischer presents his budget in April.Ā Ā
The latest analysis: Fischer starts final term with budget hole, skeptical Metro Council
Background: Fischer’sĀ tax plan looks unlikely to pass with council’s ‘lines in the sand’
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Here’s what to know ahead of the vote:Ā
The insurance premium tax is one of the few taxes the state allows local governments to levy.
The tax falls on insurance companies, but the businesses typically pass the cost on to customers, who would absorb any increase or change in the rate.
“Ultimately, it’s just like any tax: With the gas tax, oil companies don’t pay it,” said David Cronin, owner of Louisville Kentucky Insurance. “It’s more money coming out of the average person’s pocket” by way of insurance premiums.Ā
Insurance companies can levy a fee for collecting the insurance premium tax. Under state law, they’re entitled to a collection fee of not more than 15 percent of the fee or tax collected or 2 percent of the premiums subject to the tax, whichever is less.
The state insurance department doesn’t track or receive collection fee information from insurers, a spokeswoman said. But it does review individual claims during conduct reviews.Ā
From February: Fischer wants a major insurance tax hikeĀ
In short, any policy that already has an insurance premium tax, except for health and vehicle insurance policies, will triple in four years under Fischer’s plan.
The city’s chief financial officer, Daniel Frockt, has advised that the easiest way to see how it affects individual insurance policies is to look at what’s listed on bills.
If the current premium is $1,000, and $50 is going to the city, that figure would triple in four years,Ā under Fischer’s proposal. It would double under the more modest counterproposal.
TheĀ tax hike would include home, life, marine and miscellaneous insurances such as malpractice, title insurance and umbrella coverage.Ā
Other affected insurances include:
You may like: Fischer’s tax hike sparks a Metro Council counter proposal ā with cuts
Frockt, the city’s CFO, estimates tripling the taxĀ would increase the average Louisville family’s home insurance by $12 to $13 per month by the time the tax is fully enacted.
That’s based on a $1,500 premium for a house worth anywhere from $125,000 to $300,000.Ā
Doubling the insurance premium tax would increase that same family’s home insurance by about $6 a month.Ā
The mayor’s office didn’t give any estimates on the change in cost for marine or life insurance premiums, but that likely would depend on the individual policy. Whatever you’re paying in taxes on your premiums now would either double or triple by fiscal year 2023, under the current plans.
From last week: Fischer tax’s counter-plan clears panel in minutes, setting up battle
You might be.
Suburban cities in Jefferson County are considering raising their insurance tax rates to mirror Metro Louisville’s. Rates vary in the suburban cities, and they are as much as 10 percent in Shively, Goose Creek and West Buechel.
The statewide average for insurance premium tax hovers around 7.3 percent across the types of insurance, according to the state’s insurance department.
A number of areas already collect 10 percent, including: Oldham County, La Grange, Henderson, Erlanger and Ashland. Covington has a 12 percent rate, while Newport charges 15 percent on policies except for marine and life.
Fischer’s team has said there’s a roughly $35 million hole in the upcoming budget.
About $20 million of thatĀ ā last year’s $9.4 million, plus about $10.4 million this yearĀ ā is from the rising pension obligations the Kentucky Retirement Systems board put into place.
The other $15 million stems from increasing health care costs and lower-than-expected revenue, Frockt said.
The mayor’s office expects that the pension costs will rise by roughly $10 million for each of the next four budget cycles, meaning that the budget hole will grow to $65 million by fiscal year 2023.
Related: Fischer suspends work on debt-funded projects after ‘troubling’ council vote
Louisville and communities across the state in the County Employees Retirement System were told they needed to pay more for their employees’ pension benefits in 2017, after the Kentucky Retirement Systems board made aĀ new set of assumptions.
At the time, the state budget director, John Chilton,Ā called the new assumptions aĀ “realistic” outlook for the plans.
It sent shock waves across the state, including in Louisville, where Fischer and his team warned of “draconian” and “crippling” cuts that would have to be made to cover the estimated $38 million in retirement costs.
But Louisville and other local governments, school districts and municipal agencies in CERS successfully lobbied for a phase-in of the cost. The plan approved by the state legislature caps pension cost increases at 12 percent each year.Ā
Last year, the city absorbed a roughly $9.4 million increase in pension costs by using some nonrecurring revenue sources and not filling 49 open positions.Ā
This year, it appears things won’t be as simple.
From Mayor Fischer: We have to raise taxes to keep Louisville moving forward
Metro Council members haven’t laid out exactly which departments or spending priorities would face cuts.Ā
Leaders such as President David James, D-6th, and budget chairman Bill Hollander, D-9th, have indicated the revenue ordinance will come before any budget cuts discussion. That conversation, they say, could wait until after the mayor presents his budget to council on April 25.Ā
“For me, I was personally never thinking that cuts would be a part of the (tax increase) document. I knew that cuts would be part of the conversation,” James previously told the Courier Journal.
Some “potential areas of focus” listed as possibilities in the counterproposal include:
Fischer has called the counterproposal “far from a perfect solution,” adding that he would work with council members to find cuts or efficiencies that aren’t “too deep.”
He didn’t specify what dollar figure in cuts would be acceptable, but said that it gets “more and more difficult” the more cuts you have.
He’s stressed that “cuts have consequences.”Ā
“A lot of these cuts, behind them, it’s just a strategy of hope: I hope we don’t need these police officers. I hope we don’t need the fire department. I hope we don’t need an ambulance to show up,” Fischer said. “Hope is not a good strategy to run any operation. And particularly one that provides basic city services to our citizens.”Ā
Before he proposed the insurance premium tax hike, Fischer outlined “devastating” cuts that would be needed to fill the budget hole, including staffing reductions in nearly every city department. It includes closing two of the city’s fire stations, four of the five public pools, four of the 10 public golf courses and one of the city’s 18 public library branches.Ā
Read more: Fischer: Council tax counterproposal is ‘far from a perfect solution’
Darcy Costello: 502-582-4834; [email protected]; Twitter: @dctello. Support strong local journalism by subscribing today: courier-journal.com/darcyc.
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