Mayor Greg Fischer unveiled a plan on Wednesday to dramatically increase the tax rate on certain insurance premiums over the next four years, in an effort to fill a $65 million budget hole over that time and avoid “devastating” cuts to government services and layoffs.
Fischer proposes to increase the city’s tax rate on home, life, marine, malpractice and title insurance from its current 5 percent to 12.5 percent in the next two fiscal years, with that rate increasing to 13.5 percent in the following year and 15 percent by 2023.
Together, these insurance tax hikes are expected to generate roughly $63 million over those four years, nearly matching the projecting deficit over that time.
The mayor’s proposed tax increases will not apply to vehicle insurance premiums, as several Metro Council Democrats had suggested exempting last week due to the disproportional impact it would have on west Louisville residents that are charged higher rates.
These tax increases would have to be approved by Metro Council before March 23 to go into effect in the next fiscal year beginning July 1. Five Democrats have agreed to sponsor an ordinance to push through the tax increases: Council President David James, Budget Chairman Bill Hollander, Councilman Pat Mulvihill, Councilwoman Barbara Sexton Smith and newly elected Councilman Marcus Winkler.
The Fischer administration’s projections assume that the 83 small incorporated cities in Jefferson County follow suit and lift their tax rates for these insurance premiums by the same amount to keep that revenue in-house, as Insider Louisville reported on Monday that several cities are already preparing to take up before March 23.
Last week, the mayor issued a lengthy statement warning of the potential for massive cuts to city services unless the city was able to identify an additional source of revenue. Fischer said such potential cuts could include up to 317 layoffs of city employees in the next fiscal year alone, reducing the number of police officers in the city by 250 over the next four years, and the closure of library branches, fire stations, health clinics, community centers, pools and golf courses.
Fischer said Wednesday that he was “reluctantly” pushing forward this proposal to raise taxes — which hasn’t been done in Louisville for decades — but called it “the best, least painful option.” He also reiterated his point that these tough measures were “mandated” upon them by the increased pension contributions set by the leadership of the Kentucky Retirement Systems in the summer of 2017.
Using a specific example of the impact of his tax proposal, Fischer stated that the average family’s home insurance taxes would increase “by about $12-13 a month, or around 40 cents a day.” His administration has not yet detailed the average impact of the tax rate hikes on the other insurance premiums.
The mayor also noted that cities like Louisville are limited by Frankfort legislators and the state constitution from identifying other ways to raise new revenue like a local option sales tax, which Fischer has unsuccessfully advocated the passage of for many years.
Several council members in the past week have criticized Fischer for only recent bringing up the extent of the service cuts or tax increases needed to plug in the budget gap caused by the increased pension obligations, but the mayor has dismissed such detractors as not paying attention to his many public warnings about these looming challenges over the last year and a half.
One such critic to join the fray over the past day is Gov. Matt Bevin, who sent a letter to Fischer citing the surprise of several council members, asking: “How could you and your administration have been so oblivious to what has been going on with the pensions?”
Bevin’s letter suggested that Fischer had not known about the increases to pension payments for local governments until recently and attached news articles detailing the issue since 2017, though these articles themselves cited Fischer and his administration stressing the future budget challenges that pension obligations posed for the city.
Also on Wednesday, Fischer released a video on his Facebook page that featured numerous clips of himself and his budget director over the past year and a half warning of the gravity of the looming budget crisis created by increasing pension obligations. That same video was played before the mayor announced his proposal before a large and supportive audience in Metro Hall.
Referencing that video, Fischer said “you hear some people saying this is a big surprise to them,” pausing for comedic effect. “So you just want to present the facts. Facts are important.”
Stating that Louisville citizens and council members “have known generally about this challenge for quite some time,” Fischer expressed his appreciation for members who “have been working with my team and me in a constructive fashion, with no political posturing. And unfortunately, we’re beginning to see too much of that.”
“When we see political posturing, what I ask of each and every one of you is to demand facts, and if you’re against something, be for something else,” said Fischer. “And be specific. Some people say I don’t want to raise taxes or cut services. It’s not going not work that way. That’s not what a responsible elected official will say.”
Asked what he thought of Bevin’s letter, Fischer said it was “ill-informed and political. We agree we have a problem on budgets, but let’s stop the play time and stop the distractions and get to work on the problem.”
Fischer urged citizens of Louisville to contact their council members with support for the tax plan and avoiding the cuts to services and city employees. The ordinance will be filed on Monday and receive its first committee hearing next week.
This story has been updated.