Paychecks for employees who work inside the city limits of Whitesburg will be a bit smaller beginning October 1.
That is the date a new “occupational payroll tax” approved this week by the Whitesburg City Council will take effect. The 1.5% tax on gross wages applies to nearly every worker who performs a job in Whitesburg, resident and nonresident alike. It will be collected by employers and paid quarterly to the city.
The council first considered the ordinance and ordered it to be drawn up at its regular monthly meeting on September 10. The 14- page document was drafted by City Attorney James D. Asher and read for the first time by Asher during a special meeting on September 19. Four days later — at a special meeting on September 23 — the council heard the second reading of the ordinance by Asher, a former mayor of Whitesburg, then voted 4-1 to adopt the measure into law after it is published in The Mountain Eagle.
The motion to approve the directive authorizing the tax, officially known as Ordinance No. 2013-3, was introduced by Councilman James Bates and seconded by Councilman John Williams. Council members Robin Bowen Watko and Larry Everidge joined Bates and Williams in voting yes. Council Member Sheila Shortt cast the lone no vote. Shortt works for the Letcher County School System. Many of her fellow employees were among the most vocal critics of the tax.
While the adoption of the occupation payroll tax means the city will no longer attempt to collect occupational licenses and fees that had been charged to everyone from taxicab drivers to surgeons, businesses will still be required to purchase business privilege licenses. nesses will still be required to purchase business privilege licenses.
The ordinance says the 1.5% payroll tax will apply to “every person or business entity engaged in any business for profit, non-profit and any person or business in any business for profit and any person or business entity that is required to make a filing with the Internal Revenue Service or the Kentucky Revenue Cabinet shall be required to file and pay to the City an occupational payroll tax for the privilege of engaging in such activities within the City.”
The ordinance says the payroll tax will not apply to:
• persons receiving retirement pensions or disability payments;
• persons receiving unemployment compensation;
• death benefits payable by an employer to the beneficiary of an employee;
• the amounts of money received by employees under the Workers’ Compensation Act;
• allowances and reimbursement expenses;
• fringe benefits not taxable for federal income tax purposes;
• student payments received in the form of stipends, honorariums, and grants;
• tips received by employees from customers;
• compensation received by domestic servants (gardeners, cooks, chauffeurs, nurses, etc.) who are not employed by a cleaning service, lawn care service, personal nursing service or “other entity which offers the services of its employees to the public,” and
• wages, salaries or other compensation received while performing entertainment acts before a live audience.
The tax also does not apply to any compensation received by members of the Kentucky National Guard for active duty training or to any compensation received by precinct workers for election training or work at election booths in state, county, and local primary, regular or special elections, and any individual called for Letcher Circuit or District Court jury duty.
Employers are required to begin deducting and withholding the payroll tax for the quarter ending December 31, 2013. The ordinance authorizes the city to place a lien “upon all property of any employer who fails to withhold or pay over to the City” the taxes that were withheld.
All money raised through the new tax will be placed into the city’s general revenue fund.
Because a time for public discussion of the ordinance wasn’t included on the agenda for Monday night’s special meeting, no member of the audience that nearly filled the council’s meeting room in City Hall was given the opportunity to speak about the tax.
After the motion to approve the tax carried, Mayor James W. Craft asked for a motion to adjourn and the meeting ended with one woman shouting “tyranny” and telling the council she intended to recruit other people to run against Craft and the council members in their next elections.
While the atmosphere at Monday night’s meeting was tense, the audience was neither as large nor as vocal as it was at the September 18 meeting, when several people angered by the tax interrupted Mayor Craft and spoke from their seats without identifying themselves and coming to the podium, as Craft had asked them to do at the start of the meeting.
The meeting ran for more than two hours. The majority of the people who spoke voiced their opposition to the tax and identified themselves as employees of the county school system.
Craft told the audience, which spilled into the hallway, that he is aware that nobody likes taxes.
“You hate them,” said Craft. “And I suppose you hate the people who impose them on you even more.”
Craft also told the audience he wanted to clear up some misunderstandings concerning the ordinance, such as whom the tax will affect. He said if a person works in the city he or she will be subject to the tax, but as City Attorney Asher later explained, there are exceptions. Craft also said if someone is employed by a company or institution located in the city limits but he or she does not physically work in the city the tax would not apply to them. As an example, he said that although the county school system is headquartered in Whitesburg, teachers and staff who work at schools located outside the city, such as Martha Jane Potter Elementary at Kona, would not have to pay the tax.
Juanita Spangler, a teacher at Whitesburg Middle School, was the first to speak at last Thursday’s meeting. Spangler began by reading a letter addressed to Craft and the council from Regina Brown, president of the Letcher County Teachers Organization. In the letter, Brown conceded that the tax was legal but complained that notification of the meeting, which appeared on the front page of the September 18 edition of The Mountain Eagle, was not sufficient. Brown said the tax is a “bailout for the city” that can not be afforded by teachers who have not had a pay raise in seven years.
Spangler then asked Craft why the tax is necessary and why the amount of 1.5% was chosen. Like a number of others who would follow her, she asked about the tax on the sale of alcoholic beverages and how much revenue it generated. Spangler also asked how much the new tax would generate and why the city had been unable to enforce the city sticker ordinance and the occupational license ordinance. Craft replied that most of the questions would be answered when Asher read the ordinance.
Sherry Bailey, who lives at Kona and teaches at West Whitesburg Elementary School, said she is concerned about the impact the tax will have on lower paid staff such as instructional assistants and other classified employees who earn only enough to pay for their health insurance policy.
Nancy Ratliff, who works as classified staff at Martha Jane Potter Elementary and is secretary of Letcher County KESPA, an organization representing classified employees, agreed with Bailey that some of her co-workers make so little they primarily work for the benefits such as insurance. She said many classified workers do not make a living wage and live at or below poverty level even though they are employed.
“It’s very unfair to ask these people to pay an additional tax,” said Ratliff. “Sometimes they have to write a check to the school board to pay for their insurance.”
Harry Collins, a teacher at Arlie Boggs Elementary School at Eolia, said he came to the meeting seeking clarify a lot of rumors were going around. Collins remarked that the audience was made up of “educators and health care workers — the public servants of Letcher County.”
“And that’s who we hit first?” Collins asked.
Albany Buttrey, a math teacher at Letcher County Central High School who lives at Premium, said the city council’s decision to tax workers who don’t live in Whitesburg is “taxation without representation.”
Buttrey said Whitesburg’s city government should have to tighten its operating budget the same way as families who are being hurt by the current slump in the coal industry. Buttrey said she knows of many families who have had to cut down from two vehicles to one. She also threatened to boycott Whitesburg businesses if the council approved the tax.
“The thought of a boycott hurts my heart,” Buttrey said.
Buttrey later asked if all people who would be affected by the tax would get to vote in city elections. Craft said that would be impossible under Kentucky law.
Mike Caudill, CEO at Whitesburg-based Mountain Comprehensive Health Care Inc., told the council he doesn’t like to pay taxes either, but said he realizes that everyone has an obligation to pay their fair share. He said he wasn’t at the council meeting to speak for himself, but was there to represent some of the people who make up MCHC’s clientele, the working poor at the bottom of the economic scale.
Caudill suggested the council look at implementing some sort of sliding scale to determine who pays how much in taxes, according to their income. He pointed to MCHC’s sliding scale, which is based on percentage of income as it relates to poverty guidelines set by the federal government. He also suggested that the taxes be “before tax” payments taken out before other taxes are levied so the federal government can help defray the cost. Caudill said a tax of $10 or $20 a payday could be devastating to some people.
Misty Kincer, a Mayking resident who works with the Big Sandy Area Development District’s Regional Kentucky Works Program is an employment specialist, said she thinks the tax will hurt business in Whitesburg. She also asked how the funds from alcohol taxes are spent and why the city stickers weren’t pursued more diligently.
Scottie Billiter, a Payne Gap resident who works as an assistant principal at Letcher County Central High School, said he thinks the payroll tax will make it hard to recruit good teachers to work in Whitesburg.
“I think that’s what makes Whitesburg special — we don’t have any taxes,” said Billiter.
Josh Tyree, a Neon resident who also teaches in Whitesburg, accused the city of trying to rush the tax procedure through. He also criticized a letter to the editor that appeared in the September 18 edition of The Mountain Eagle from Councilman Tom Sexton, saying that some of Sexton’s remarks were condescending toward those who object to paying the tax.
Tyree also said he had sent numerous e-mails and faxed letters to Mayor Craft, but had received no reply. Craft told him he had read his e-mails and letters, but had not had time to reply.
Tyree said he does not benefit from city services and may be forced to find a part time job to make ends meet since the city will be taking “$600.02 of my annual income.”
“Without this 1.5%, frankly my family will no longer be able to pay its bills,” Tyree said.
Tyree also called the argument that other cities in Kentucky such as Pikeville and Hazard have occupational taxes an “irrelevant and logical fallacy.” He the city has “failed miserably” to enforce previous ordinances for occupational licenses and city stickers.
“The city has failed miserably at collecting and managing funds,” said Tyree. “I grieve for my colleagues who are unable to be heard tonight because of your attempt to hasten through the required democratic process. The city is responsible for the bulk of its own financial strain.”
Cheryl Furby, a Whitesburg teacher who served on the Fleming-Neon City Council for nine years, said she believes the council needs to initiate measures to save money. She said she was able to save Fleming-Neon a large amount of money by identifying streetlights that city was paying for when it shouldn’t have been.
Letcher County Central High School teacher Rocky Craft, who lives on Cowan Hill, told the council he “can’t afford (any) more taxes.”
“I’ve got one in college and one more ready to go,” he said.
After every audience member was given the opportunity to speak, Mayor Craft then addressed the crowd and said the city’s bills have gone up exponentially over the past few year. He cited fuel costs and equipment and maintenance costs as well as the settlement of a lawsuit with Veolia Water North America as reasons the city must raise more operating funds.
Veolia Water operated the city’s water and sewer department before pulling out two years ago after the city’s debt to the corporation grew to more than $500,000. Veolia sued the city for the past due money and the city council voted to pay the debt in payments as part of a confidential settlement agreement. However, the city has been too financially strapped to live up to its part of the settlement.
Craft told the audience that the problems that led to the city owing such a large sum to Veolia began long ago.
“It’s a problem that wasn’t created by anyone on this council, but we have to deal with it,” said Craft.
Craft also pointed out that the cost of dumping garbage at the Millstone transfer station has gone up from $38 to $46 per ton, and the city trucks dump eight to 10 tons a day.
In response to a question about back taxes due the city, Craft said the city is owed $17,000, an amount he said would be a drop in the bucket when it comes to paying regular bills and making payroll.
Craft said that every one of the city’s 36 employees is now being furloughed one day a week and that he has cut his salary from $8 an hour to $4 an hour.
“You and other people who come into our city and utilize our faculties have to help us deal with this” said Craft. “I have already furloughed everyone who works for the city one day per pay period. You say cut the budget. I can lay off the fire department. Then when you get a fire, who will you call? When Bert Slone (Letcher Central’s school resources officer) gets into a situation at the school you can’t handle, who will you call if the police department is laid off? Our budget is our people.”
Terry Howard, who works for the Letcher County Board of Education and lives in Whitesburg, also asked about the alcohol tax. Craft said if the alcohol tax had not been in place the city would have been forced to institute an occupational tax two years ago. Howard said he knows there are cutbacks the city could make and Craft asked him to name one.
“I saw your fire and rescue truck at Wendy’s three times this week,” said Howard.
Craft said the trucks have to be driven at least an hour each day to make sure they are functioning properly and ready for emergencies. (To that, Spangler, the Whitesburg Middle School teacher, said the rescue trucks and the fire trucks should be sent to the schools to educate the children.)
“I campaigned for you,” said Howard. “But I promise you that as quick as you went in you can go out.”
Howard also said that some people may decide not to shop in Whitesburg as a result of the tax. He said he would not have the heart to tax someone who makes $11,000 a year and works mostly for the benefits.
“I ask you to have a little compassion,” said Howard.
Shad Baker, who works at the University of Kentucky Extension Office in Whitesburg and lives in Jenkins, asked why city water and sanitation rates haven’t been increased enough to cover the expense of operating the services. Craft pointed to maintenance expenses such as a $28,000 pump that is getting ready to go out and a $6,000 fee to the state just to draw water from the Kentucky River. He said that such expenses are either unanticipated or cannot be included in the water bills to customers.
City Water Maintenance Director Chris Caudill told the crowd that since the last council meeting the city is facing a need of $32,000 to replace pumps that have gone down.
Longtime Councilman John Williams, who has lived in Whitesburg for 50 years, told the audience the city has to generate additional income if it hopes to keep from “becoming a Blackey.”
“I love this city,” said Williams. “It’s going to fail — it’s going to go under — unless we do something.”
“This is not pleasant,” said Williams, adding that he has a daughter who will be affected by the tax. “Sometimes when you serve you’ve got to have thick skin. You’ve got to make decisions that are for the betterment of Whitesburg.”
Williams, 70, retired from his job in the X-ray department at Mountain Comprehensive Health Corporation on August 15. He is serving his fifth term on the city council.
“It’s a thankless job, but I’m thankful the people voted for me,” said Williams.
City Attorney Asher, who served two terms as mayor, he is as aware as anyone of the city’s financial condition, including the cutback in coal severance tax receipts and the situation with Veolia. He said he wanted to make the point to the audience that Whitesburg is not a closed city and has always seen itself as a part of the county community — and as an open city and a commercial center.
“The mayor is trying to find something that is fair to spread the costs that go into the general fund,” said Asher. “We look at ourselves as a part of the community and as being available to the community.”
Asher reminded the audience that the city had bought and paid for the Whitesburg Campus of Southeast Community College with the help of the county at a cost of $11 million. He said the cost can’t be put solely on the back of the citizens of Whitesburg when the city’s services benefit others in the county. He pointed to the expansion of the city water plant to serve the new high school and to county water customers in Mayking. He said that city water not only gives them access to treated water it also improves fire service.
‘We have never looked at Whitesburg as just trying to take care of itself but as part of the community and have always addressed community needs. The taxpayers in the community can’t a take all the burden.,” said Asher. “All the citizens in Whitesburg pay county property tax too. You couldn’t have the high school if the city hadn’t increased the output of the water plant.”
Asher said the businesses in Whitesburg that serve the entire county wouldn’t be here if not for city services. He also pointed to a $100,000 shortfall in coal severance taxes as well as selling water at a wholesale rate to county customers as reasons the city is in poor financial condition.
When one audience member complained about lack of representation, Asher replied, “You’re here tonight ma’am.”
The ordinance appears in its entirety on pages 10 and 11 of this week’s issue.