Payroll tax may be on the horizon

Whitley County Fiscal Court members got plenty of news about the county’s budget deficit during a special called meeting Thursday morning, and the bottom line is that none of it is good.
In order to make-up for a projected $837,978 deficit that the county is expected to have at the end of the fiscal year on June 30, fiscal court members are being faced with the choice of either implementing a payroll tax, or making huge cuts in services, which could include doing away with the ambulance service or eliminating health insurance for county employees.
The county currently pays 100 percent of the employee insurance.
“Those are kind of the drastic steps that you are looking at. I hate to be the bearer of bad news on a lot of things. It is not anything of mismanagement. It is something that has been building. It comes to a point where your expenditures get so much that your receipts don’t match up to it,” said Lonnie Campbell, a Governor’s Office for Local Development official.
“To be honest with you, you’re receipts are flat now. There are some minor things you can cut, but I’ll tell you up front from looking at it and from my experience with other counties, there is not a lot. The two big things that I look at are health insurance, and the ambulance service. We’d have to look and see how much cutting the ambulance would really save you.”
If the county doesn’t have a balanced budget in place by July 1, which includes repayment of $770,000 in loans from this fiscal year, it will be faced with the prospect of being forced to shut down.
Campbell said he can’t say with a 100 percent certainty, but that he is 90 percent certain that the county can’t balance its budget without implementing a payroll tax.
“Even if you could, you would have a caretaker government, and have a lot of your employees go elsewhere. If you have a caretaker government, you’ll have a caretaker government until you put on some kind of revenue increase. It won’t go away,” Campbell said.

Where they stand
Whitley County Judge-Executive Mike Patrick asked department of local government officials to provide the fiscal court with copies of payroll tax ordinances from other counties prior to this month’s regular monthly meeting, which is scheduled for next Tuesday.
“I think the handwriting is on the wall. We have to be considering a payroll tax,” Patrick said. “Nobody likes taxes, but taxes are how government meets the needs of its people. Do we have some other problems that need to be handled and done something with? Yes, we do, but in the long term we need to be able to meet the needs of our people.
Patrick said he would go as far as making a motion at the next fiscal court meeting to approve the first reading of a payroll tax ordinance.
Even if Patrick makes the motion to approve an ordinance, whether it would be approved isn’t certain.
Three out of the four magistrates surveyed by the News Journal last week say they aren’t in favor of implementing a payroll tax, and think the budget can be balanced using other means.
“I am 100 percent against an occupational tax,” said Magistrate Johnny Lawson. “I will never vote for an occupational tax as long as I am on the fiscal court that is 100 percent.”
Magistrate Nolan Bird said he is not in favor of an occupational tax, and most likely that he won’t vote for one.
“There would have to be a lot of other things cleared in my mind before I could vote for it,” Bird said.
Magistrate Wayne Wilson said he is opposed to an occupational tax, and would hope that the budget could be cut without implementing a tax.
“I think there are other avenues maybe we could take, like maybe cutting the jail budget, or maybe turning the old jail into a juvenile detention center. Things like that we need to look at,” Wilson said.
Wilson said he would currently plan on voting against a payroll tax if it is proposed.
Magistrate Burley Foley did not return a message left at his place of employment Monday afternoon.

Where the money is going
One of the biggest cash drains on the county’s budget is the jail.
Campbell said the fiscal court has consistently had to transfer more money into the jail fund the last several fiscal years.
In the 2000-2001 fiscal year, the fiscal court had to allocate $468,390 into the jail fund. In the 2001-2002 fiscal year it jumped to $558,380, followed by $618,175 in the 2002-2003 fiscal year, $706,500 in the 2003-2004 fiscal year, and this fiscal year has been $1,037,406 through April 15.
“That is almost $450,000 more than you planned to spend over there,” Campbell said.
The jail isn’t the only area where the county has had to spend more money.
Campbell said that while the fiscal court had no money budgeted initially for the ambulance service, eventually $98,000 had to be transferred into the service’s account this fiscal year.
Only $10,000 was budgeted for the 911 service, when the actual figure was about $42,200 this fiscal year.
“It’s not that unusual. All counties throughout the state have jail drains on their budget. I think, if I could focus anywhere in this situation, that is where a lot of money is being transferred. It takes a lot of money to run those facilities. You all built a new one, and there is debt service involved in that. This isn’t to say that’s the only issue,” Lawrence Cordell, Deputy Commissioner of the Governor’s Office for Local Development, told the fiscal court Thursday.
“Quite often you have to look at either decreasing expenses, or raising revenue. Unfortunately, in most counties the revenue has remained relatively flat, and expenses, inflation, and just the normal costs of running county government are going up at a much more rapid rate than revenue.
“This leaves you with the challenge of reducing expenses, which is not easy to do. Like most counties you are already running at a bare bones minimum, or you can increase revenue. I’m not pro-tax or anti-tax. I’m just a realist when it comes to financial matters. Implementing some type of tax may be the other alternative to increasing revenue.”

Options for raising revenue
Campbell told magistrates that they have few choices in terms of raising revenue.
One would be an insurance tax, but that it is too late for the county to put one in place, and have it going by the start of the fiscal year.
In order to start an insurance tax, the county would have to have the measure approved by March 20 to start billing on July 1.
The only other area to raise revenue significantly is by implementing a payroll tax.
The implementation of a 1 percent payroll tax could generate roughly $2 million annually for the county, but the fiscal court might end up only seeing about 25 percent of that money.
Still, this might not solve the county’s financial woes.
Because Whitley County has a population of over 30,000 people, if the fiscal court implemented a payroll tax, then Corbin and Williamsburg could implement one as well.
Rather than city workers paying a 1 percent tax to the county, and a 1 percent tax to the cities, the cities portion of the tax would come out of the fiscal court’s take.
Assuming the county doesn’t negotiate some type of agreement with the cities, and the cities implement their own tax, the fiscal court could be left with about $400,000 in revenue annually from a payroll tax, Lawrence said.
Currently 67 counties in Kentucky have a payroll tax, and that number could jump to 71 counties by July 1, Campbell added.
30 counties currently have an insurance tax, and 10 counties have both an insurance tax and an occupational tax, which is paid by every person, who works in the county.
Campbell said the county could raise its property tax rate, but that the amount is capped so a raise in it would only generate another $20,000 annually.
If the county goes over the state’s rate, then voters could turn around and vote the increase down.