By Beth Musgrave
FRANKFORT — Reforming Kentucky’s special taxing districts will be the top legislative priority of House Democrats during the 2013 legislative session, House Speaker Greg Stumbo said Thursday.
Legislation that would require more transparency and accountability for special taxing districts will be House Bill 1, a bill number reserved for the majority party’s top priority, said Stumbo, D-Prestonsburg.
Special taxing districts, which spend about $2.7 billion a year with little oversight, will get top billing above potential proposals to overhaul the state’s tax system or reform an ailing pension system for public workers. Both issues have been studied extensively this year by government-led task forces.
Stumbo said tax reform and pension reform are still top priorities, but the tax panel has yet to release its final recommendations and the pension group failed to address a key issue — how to fund its proposals.
In the first-ever accounting of special taxing districts in Kentucky, State Auditor Adam Edelen recently identified 1,268 districts that spend a total of $2.7 billion a year. The money comes from a combination of taxes, fees and other funding.
In all but three Kentucky counties, citizens pay more to special taxing districts than to the county government, the report showed. Special taxing districts include entities such as library boards, fire departments and water and sewer systems.
About 40 percent of the special taxing districts that are required to submit budgets to county governments do not, the report found. Half the special districts with revenues of more than $750,000 a year were not audited, even though that’s required by law. That represents $461 million in tax revenue that had no oversight, Edelen’s office found.
Edelen said at Thursday’s news conference that HB 1 would require districts to register with the state, making it easier to track them. Those that failed to turn in their required paperwork or financial information could be subject to an audit by Edelen’s office. All special taxing districts would also have to comply with county ethics codes.
“People want to do the right thing, but don’t know how,” Edelen said. “We have to have a more workable system…We have to have something to compel compliance.”
Sen. Damon Thayer, R-Georgetown, has sponsored bills for several years that would require county governments to sign off on any tax increases implemented by a special taxing district, but those bills have never passed, largely because of political pressure by the districts.
Because of Edelen’s work, Stumbo said HB 1 has a good chance of becoming law in the upcoming session, which begins January 8 and lasts 30 working days.
“I think the facts dictate a crying need for reform,” Edelen said.
Stumbo said he is not sure if tax reform will be tackled in the upcoming session. A task force established by Gov. Steve Beshear has been studying the issue for almost a year. It is scheduled to make its final recommendations by Dec. 15.
Beshear has hinted that he may call a special session to address tax reform after the regular session.
Stumbo said he hoped the tax reform commission would make a bold plan and let the General Assembly decide what can be passed. “It doesn’t appear that they’re going that far,” Stumbo said.
On the pension issue, Stumbo said he was against borrowing to shore up the pension system but said raising taxes on the wealthiest public and private pensioners might be a way to help fund the cash-strapped system. Most pension income is now exempt from state income taxes.
Coming up with the revenue to fund the shortfall in the pension system is the most important issue the legislature can tackle, Stumbo said, but the pension task force did not say how the state should come up with an additional $300 million a year by fiscal year 2015 to fully fund the system.