Concerns with state tax law aired before lawmakers

FRANKFORT, Ky. – Concerns about a 1979 tax law that some say allows taxing districts to raise taxes beyond the limit prescribed by law without voter approval were heard by a state legislative committee this week.

Concerns with 1979 House Bill 44, which generally limits taxing districts to a year-over-year increase in property tax revenue of 4 percent or less without being subject to recall by voters, were raised before the Interim Joint Committee on Local Government by Boone County Property Valuation Administrator Cindy Rich and her attorney, Rick Brueggemann.

Rich and Brueggermann presented examples showing that taxing districts can levy a tax rate that generates more than a 4-percent increase in revenues, without being subject to recall, because of a secondary calculation that allows personal property to be included in the rate calculation.

Rich said the situation occurs in districts that have a higher rate on personal property than on real estate. The initial calculation in establishing the property tax rate is the “compensating rate”, which is the rate that will generate the same amount of money from real property as was generated in the prior year. The purpose of the rate is to allow for adjustment as the assessment base changes. If the personal property rate is higher than the real property rate, a district will almost always be able to levy a higher rate against real property than taxpayers would expect without being subject to recall because the higher personal property rate isn’t taken into account when the initial real property rate was established.

“Taxpayers are being led to believe revenue is only going up 4 percent…or they’re being led to believe that it’s not going up at all—it’s a compensating rate, so it’s about the same as last year,” said Rich. The discrepancy shows up when citizens get their tax bill, she explained.

“The way it is being calculated, it results in a higher tax,” Brueggemann said.

A Kentucky Attorney General’s opinion requested by Rich indicates that the calculation is legal, according to committee testimony.

Sen. Julian Carroll, D-Frankfort, said time is needed for the Attorney General’s Office and others to look into the claim. But he also said it is his understanding that HB 44’s purpose is to limit collective increases in revenue—not just revenue from real property—to 4 percent without the possibility of a voter recall. Without a compensating rate, he said, the law would just deal with real property.

Department of Local Government staff attorney Andrew Hartley said his agency believes it is following the “literal wording” of the law when calculating the compensating tax rate for local tax districts.

Sen. John Schickel, R-Union, asked if citizens are expected to pay the same amount of tax as the prior year even if their property value has decreased significantly. Rich said the expectation under the compensating rate is for the same amount of revenue to be collected by the taxing district overall.

“It occurs to me…that HB 44, in a deflationary time, has a very different affect on citizens,” Schickel said.

Presiding co-chair of the committee, Sen. Damon Thayer, R-Georgetown, said the committee has a few months to determine if a legislative fix is needed for HB 44.