By Patricia A. Scheyer
NKyTribune reporter
The main topic of the June Kenton County Mayor’s Group was remote work and impact on city revenue.
“I’d like to take this opportunity to give you all a case study for the absolute need for revenue diversification for our local governments,” said Covington Mayor Joe Meyer.
“If you all know, we overwhelmingly rely on the occupational license fee. I think for most of us our occupational license fee is fifty, in some cases sixty and sixty-five percent of our revenue and obviously we have been focused on increasing employment in the city because of enhanced revenue for several years.”
He said they ran into a situation where the largest employer in the city changed their policy on withholding for their remote workers. During the pandemic, he explained, the company withheld normally and then the employees applied for refunds. Last year, the company changed its policy with no notice to the city.
“We were observing on a monthly basis a our revenue changes, and in December and January we noticed that things were really falling off a cliff,” he said. “And fall off the cliff they did. So for the six month period from January 1 to June 30 we lost $5 million dollars. For the fiscal year that starts July 1 we are projecting a revenue loss of $7 million dollars.”
He said the good news is that they do have the resources to handle that loss on a short term basis, but he noted that the bigger picture raises the problem of when someone puts all their eggs in one basket, and that basket springs a leak, there is nowhere else to go. The city cannot raise their property tax more than 4 percent, the insurance premium tax is higher than it should be, and their occupational license fee is limited, he said, because the county stacks their occupational license fee on top of that of the city.
“So we are in a real revenue box,” Meyer stated. “Covington did nothing wrong here. We played by all the rules. This was absolutely unforeseeable, from our perspective — there was no notice, it just happened all of a sudden.”
He suggested that the need for a consumptive tax, as an alternative or supplement, becomes more important. At the end of the day, he said, the services that the cities provide is the reason people want to live there, because those are the quality of life functions, and without cops, firefighters, parks, and public works to keep the streets clean, what can the future be for the cities and communities?
“We are not asking for handouts here,” he said. “We are asking for the opportunity to have our people and people who enjoy the benefits of our city pay in a way that allows us to continue to provide high quality services.”
He welcomed questions.
“We ran into the same situation in our city,” said Mayor Paul Meier, of Crestview Hills. “We had a call center, and when COVID hit they basically shut down and sent everyone home. I agree that there needs to be some revenue diversification, however if you listen to some of our legislators, they’re talking about, even to the point, well we’ll give you some revenue, sales or restaurant tax, but we’re going to take other things away from you.”
Such as, Meier said, they could take the payroll tax away.
“Is there something the three counties at least in Northern Kentucky can do to work on this project?” Meier asked.
Meyer said the state constitution limits the authority of the cities so much that a constitutional amendment would be required to allow the general assembly to come up with different ideas to alleviate the situation.
“The sales tax, obviously, is the consumption based tax,” Meyer explained. “There are 38 states that allow local governments to impose sales taxes. The situation we are in is one that we’re still being run by single revenue source, and it’s unhealthy for us. We need to have more of a balance of a series of revenue sources.”
He cited Ohio, where when they want to do a special project, they put it on the ballot.
“Now that’s an idea worth talking about for certain things,” he said. “But the sales tax is the big one.”
It was mentioned that the idea has been kicked around in Northern Kentucky for many years but the idea has never caught on, and no one wants to put money behind the notion. Another person suggested that if the bigger picture was studied, not everyone would see a universal need for revenue diversification.
Someone said it might be too much of an administrative burden to regulate the different tax rates of the different areas, but Meyer pointed out that the Fidelity company went from withholding from all their employees and making one payment to one jurisdiction to withholding for 100 different jurisdictions with 100 different tax rates.
“You talk about an nightmarish administrative burden!” he stated. “But they have voluntarily chosen to do that.”
Meyer said sometimes it is very hard to see the big picture.
“Folks, we all know it’s easy to find reasons not to do things,” Meyer explained. “Our business is inherently slow because we try to drive for consensus, and it takes years to get consensus on big pictures. This is why I get so frustrated with the same complaints and no effort, no substantive ongoing effort, to come up with some solution or recommendation that will improve it at least incrementally. Big picture is we all do need revenue diversification. We put all our eggs in one basket we’re going to pay a price for it eventually.
“Covington’s fine. I’m not using this as an excuse. We’ve got the resources, we’re just reorienting some things, or not be doing some things. But we’ll catch up. We were on pace for a record payroll tax collection until the Fidelity thing hit us. So we’ll be fine, but the underlying issue, the public policy is still there and should be acknowledged.”