Louisville Metro Council announced the schedule for two public hearings on a proposed ordinance to significantly increase the tax rate on most insurance premiums in the city, part of a plan advocated by Mayor Greg Fischer to avoid $65 million in potential service cuts and layoffs over the next four years.
The ordinance filed on Monday would increase the tax rate on most insurance premiums to 12.5 percent from 5 percent over the next two fiscal years, then by 13.5 percent in 2022 and 15 percent in 2023. Vehicle insurance premiums — which make up roughly 44 percent of the city’s total insurance tax revenue — would be exempt from the increase, remaining at the 5 percent tax rate.
The proposed measure would not directly tax residents, but instead increase the license fees paid by insurers to do business in Louisville, with their extra costs likely passed along to consumers. For the new tax rates to go into effect for the next fiscal year that begins July 1, Metro Council would have to pass such an ordinance by its meeting on March 21.
Fischer announced two weeks ago that Metro Government faced a $35 million hole in next year’s budget and a $65 million gap over the next four years, which would necessitate “devastating” cuts to government services unless a new source of revenue could be identified.
The mayor attributed most of this shortfall to the increased cost of pensions for city workers mandated in the summer of 2017 by the Kentucky Retirement Systems, which manages the assets paid by the city to the County Employees Retirement System (CERS).
The mayor unveiled his plan last week to avoid those cuts by increasing the tax rate on insurance premiums, which mirrored the proposed ordinance filed Monday that is sponsored by Metro Council Democrats David James, Bill Hollander, Pat Mulvihill, Barbara Sexton Smith and Marcus Winkler.
Hollander, the chair of the budget committee, announced the dates for several meetings and public hearings over the next few weeks to discuss the ordinance, including a special budget committee meeting next Monday at 4:30 p.m. and a public hearing next Thursday evening at 6, directly following the regular budget committee meeting.
Another public hearing for residents to speak about the bill will be held on the following Monday, March 4, at 6 p.m., while the ordinance could potentially be passed at the regular budget committee on March 14 and then passed by the full council a week later.
The special budget committee hearing next week will feature a presentation from city budget director Daniel Frockt and representatives of the Kentucky Association of Counties and Kentucky League of Cities — two organizations that have decried the burden placed on local governments by increased pension costs mandated by Frankfort.
On Friday, Fischer began a tour of sorts to put a face on the various areas and services of the city that would be hurt by the $65 million in potential cuts if taxes aren’t raised to produce new revenue.
He spoke that day at the Louisville Fire Training Academy as recruits trained in the background, noting that his administration identified the city fire department as having to potentially close two of its 21 fire stations next fiscal year beginning July 1 if his tax plan is not passed, and two more stations in the following three years. Thirty firefighter positions would also be lost through attrition next year and 30 more in the following three years — amounting to nearly 12 percent of the city’s total force.
Having already lost nearly 100 firefighter positions over the last two decades, Assistant Fire Chief Col. Rick Adkisson said the proposed loss of more fire stations and firefighters would be “beyond devastating,” lengthening response times to emergencies and potentially having “life and death consequences.”
The mayor noted that public safety makes up two-thirds of the city’s budget, which meant that cuts without new revenue would necessitate reducing the services of first responders like firefighters, ambulance crews and police officers.
Asked by Insider Louisville if there was the potential to identify significant cuts from the third of the budget that is not related to public safety before the March deadline — thus allowing the city to raise taxes by a lower amount next year — Fischer said that “any cuts are damaging to the momentum of the city,” but he would welcome any specific suggestions.
“Right now we’ve got two scenarios: One is $65 million in cuts and the other one is $65 million in revenue,” said Fischer. “There could be $50 million revenue and $15 million in cuts… The revenue decision on March 21 will dictate what the budget will end up being. So if it’s $50 million of additional revenue, there will be $15 million of cuts in the next budget.”
Asked after the news conference if there was enough time to identify significant cuts before the March 21 deadline and raise taxes by a lower amount, Council President James expressed skepticism, adding that budget-cutting options would be discussed when the mayor presented his proposed budget for the next fiscal year in April.
“What we’re going to be doing over the next five weeks is working on the revenue issue,” said James. “The budget issue comes right after that. So what we actually end up cutting, the mayor is going to send over his proposal and then we do what we do and we try to figure out what it is based on the revenue that we have.”
While some council members have expressed frustration at being blindsided by Fischer’s announcement of potential cuts and tax increases over the past two weeks and rushed to make a decision, Councilwoman Sexton Smith said criticisms have no merit.
“I don’t feel like this is an ambush job and I don’t feel like we have this incredibly tight window,” said Sexton Smith. “We’re all starting to believe that because it keeps being said. You know what, (firefighters) are the ones who don’t have time, when the house is burning and the family is in there and they’ve got two minutes… So I think it’s showing a failure of leadership, a failure for people to understand financial management, it’s a failure of people to understand how you manage money.”
Councilman Hollander said he welcomed alternatives to their plan, but “I don’t think it’s responsible to say we can do all of this through cuts without saying what those cuts are. So we’re all ears.”
The main driver of the budget crunch was laid out at the budget committee hearing last Thursday by city budget director Daniel Frockt, who noted that the assumptions and formula for local government pension payments was dramatically changed by the Kentucky Retirement Systems in 2017, with a phased-in 12 percent increase to annual payments for the foreseeable future.
The city’s CERS payment in the current fiscal year jumped $10 million from 2018 and will continue expanding by larger amounts over the next four years until it reaches $136 million in 2023 — double the total from 12 years earlier and a 77 percent increase from just last year.
In addition to his news conference at the firefighter training facility, Fischer also held events at community centers on Friday and Monday, warning of other cuts to community nonprofits and service programs that would have to go through if the tax plan is not passed.
Last week, Greater Louisville Inc. released a statement expressing concern that the tax increases would hurt the city’s ability to recruit and retain businesses but coming short of outright opposition.
The Fischer administration says that the average family’s home insurance premiums could be expected to increase by $12-13 per month next year, but has not released any estimates of how increased tax rates on other types of insurance will affect individuals or businesses.
If the proposed ordinance to raise insurance premium taxes fails, here are some of the potential cuts to services and staff that the Fischer administration has identified as a possibility in the next fiscal year and the next four years to close the budget hole.
Louisville Metro Police Department: 100 police officer positions lost through attrition next year, along with ending the city’s use of Shotspotter technology to identify gunshots. An additional 150 positions attrited in the following three years. ($23 million)
Louisville Fire Department: Close two of the 21 fire stations and lose 30 firefighter positions through attrition next year, followed by two more stations closing and 30 more positions attrited in the next three years. ($6.8 million)
Emergency Medical Services: Lose one of the 26 ambulances next year, with two more ambulances reduced in the following three years. ($2.4 million)
Louisville Free Public Library: One of the 18 branches of the library would be closed next year, with four more branches closed in the following three years. All branches would be closed on Sundays, with others closed all weekend. Nearly 80 employees would be laid off over these four years, with 35 of those layoffs happening next year. ($3.7 million)
Neighborhood Places: Two of the eight neighborhood place locations would be closed next year, along with 14 layoffs. Four of the remaining six neighborhood place locations would close in the following three years, bringing the total staff layoffs to 42. ($1.2 million)
Parks & Recreation: Four of the 17 community centers would close next year, along with all but one of the five city pools and four of the 10 city golf courses. ($953,000)
Public Health and Wellness: In the next fiscal year, the STD clinic would close, the immunization program would be eliminated, the syringe exchange would limit its hours and staff, nine employees at the Center for Health Equity would be laid off and all funding would cease for Centerstone Kentucky’s Living Room Project to divert people from jail and into addiction treatment and services. A total of 22 layoffs across the department next year alone. ($2 million)
Office for Safe and Healthy Neighborhoods: The elimination of the Cure Violence site in Portland, one of four in the city led by No More Red Dots. ($500,000)
Metro Council: The elimination of $75,000 in Neighborhood Development Funds for each council member to allocate to various projects and community groups in their district or across the city. ($2 million)
External Agency Funds: The elimination of all funds that go to over 100 nonprofits and ministry service groups, which have typically totaled more than $5 million over the past few years.
Homeless Services: The elimination of funding for new emergency homeless services that were passed by Metro Council in December with surplus funds identified last year.
Belle of Louisville: The city would stop operating the boat on the Ohio River, resulting in the layoffs of 13 employees. ($1 million)
Brightside: The elimination of funding for the organization that cleans litter and plants trees, resulting in five layoffs. ($300,000)
Youth Detention Services: The city would turn this over to the state, which involved the structured care and supervision of youth offenders through programs and services. This would result in 113 layoffs, losing roughly $2.4 million in revenue from the state for housing inmates but cutting roughly $9.4 million in expenses.
Facilities and Fleet: The facilities labor division would be eliminated and custodial and building maintenance services operated independently, leading to 45 layoffs.