By Steve Breen, New Era staff writer
Source: Kentucky New Era
In the aftermath of the election, a constitutional amendment is being considered by Kentucky legislators that would allow communities to impose new sales taxes on themselves to finance local projects.
H.B. 399 is a bipartisan bill sponsored by 17 state legislators, including Rep. John Tilley, D-Hopkinsville, and it could be a much-needed tool to solving local budget woes.
Although the initiative stalled last year, Tilley said Monday it is “alive and well” and expressed confidence lawmakers will pass it in 2015. If approved, the bill would put the issue to Kentucky voters in the form of a ballot measure.
“It’s a great way for communities to grapple with limited resources to fund their projects,” Tilley said. “It’s been very successful in other places, and it allows greater local control of funding.”
Tilley pointed out that Oklahoma City has been using a similar tax scheme since the 1970s and it has had positive effects there.
“That city was once a disaster, but now they have an NBA franchise and other amenities after implementing the tax,” Tilley said. “(Kentucky) should consider the same thing if we are to compete on a global scale.”
According to the Tax Foundation, founded in 1937 during the Great Depression and based in Washington, D.C., all but 13 states have some form of a local optional sales tax — once known as “LOST” — that can imposed on top of state sales taxes.
Now called Local Investments For Transformation — or LIFTs — by its supporters, local option sales taxes could be used to fund library projects, school improvements, and new infrastructure and mass transit initiatives.
Under the Kentucky bill being considered, voters would have to approve any new taxes before they’re levied, and if the measure fails, it could not be resubmitted by the local government that proposed the referendum for at least five years.
Supporters say the taxes collected would be limited to a specific project and have a sunset provision that would terminate the tax upon completion of the project. The local option taxes would additionally be capped at a 1 percent rate. The tax could be broken down in one-quarter percent increments to fund several projects at the same time, but altogether, the local option tax could never rise above the 1 percent cap.
Opponents claim that, once these regressive taxes are put in place, they normally stay in effect past their proposed shelf life, as local governments keep putting them back on the ballot for voter approval.
According to a 2004 study by the Journal of Regional Analysis and Policy from Jacksonville University in Florida, many of the states with large metropolitan areas have the income base to absorb the tax, but smaller rural communities would be wise to consider other factors, such as per capita income and taxes imposed by other local governments, before approving a local option sales tax.
The JRAP study also contends that, in a weakened economy, imposing a local option sales tax to fund local projects puts an unfair burden on the poor. An amendment to H.B. 399, however, requires that “51 percent of funds received from a local sales tax be used on projects in designated areas of elevated poverty.”
Some small business owners who oppose the tax say that, if voters agreed to implement an additional local sales tax, it would force the owners to raise prices to stay afloat. Still, the Kentucky Chamber of Commerce supports the LIFT legislation.
Reach Steve Breen at 270-887-3240 or firstname.lastname@example.org.