The defeat this week of a proposed six-percent Letcher County tax on certain insurance policies has given rise to consideration of a one-percent occupational tax on all employees who work inside the county, including those who already pay such a tax in the cities of Whitesburg and Jenkins.
Shortly before 10 p.m. Monday, the Letcher Fiscal Court voted 6-0 to defeat the insurance tax proposal after the majority of citizens who filled the Letcher Circuit Courtroom argued that such a fee would be unfair to the county’s elderly and poor.
The fiscal court will now schedule another “special,” or emergency meeting to look for ways to make up for an expected $1.3 million budget shortfall created by cuts in coal severance tax revenues.
Among the limited options available to the court — and one that appeared to garner the most favor from audience members Monday night — is the passage of the one percent occupational tax, which would total $1 for each $100 earned. Employers would withhold the tax from employees, then forward the money on to the county.
Letcher County Judge/Executive Jim Ward told an audience member at Monday night’s meeting that the occupational tax would generate about $1.5 million and would keep the county from having to cut ser- vices and lay off any members of its already-slimmed down workforce.
At the start of Monday’s meeting, three members of the Kentucky Department for Local Government warned Ward and the magistrates of the consequences, including legal trouble, they would face if they don’t end the 2016-17 fiscal year with at least a balanced budget.
The meeting was the fiscal court’s fourth in one week in its continuing and so far futile attempt to address the $1.3 million budget deficit it faces at the end of the current fiscal year in June.
At the meeting’s start, Bobby Russell, general counsel for the Kentucky Department of Local Government (DLG), told the court he had brought Branch Manager Robert Brown and Local Government Advisor Will Rhodes with him, and said that failure to enact a balanced budget is very serious. But, he said, Letcher County is not alone, and DLG is working with other coalfield counties that have also been negatively affected by the collapse of the coal industry and declines in coal severance tax funding.
“It is the duty of the court to have a balanced budget,” said Russell. “It’s pay as you go,” explaining that there is no provision in the state constitution for a county to carry debt. He said the state can institute legal procedures that will compel counties to comply with state law if they have a deficit. Russell added that there have only been two incidents in which counties were taken over, one in 1906 and the second in 1992, although the Letcher County Fiscal Court was held in contempt in 1980.
Brown then addressed the court and said that most eastern Kentucky counties have seen a decline in coal severance tax receipts and that there are three options to address deficits. One is to increase revenue, one is to cut costs, and the third is a combination of the two. He added that DLG does not want to make the decision as to which option for any county.
Rhodes told the court that according to his analysis of its most recent data, there are no spending problems. That is, there is no frivolous spending, and the issue lies with revenue. He proposed three ways to address the issue, through an insurance premium rate tax increase, an occupational tax, or an increase in property taxes.
Ward then presented a short Power Point presentation claiming that six years ago he had warned the court about the probability of an impending shortfall, and that he had proposed privatizing the sanitation department. According to Ward’s calculations, if this had been done five years ago, the county would have saved $1.4 million and generated an additional $1.2 million in income from the franchisee, which would amount to a total of $2.6 million in savings. He added that over the last four years, he has instituted $2.7 million in budget cuts by making operations more efficient, negotiating better deals in contracts and purchasing, consolidating services, and by not replacing county employees when they retire, but by reassigning their duties to other employees.
The presentation also addressed the Letcher County Recreation Center by saying that as the only county building solely funded by coal severance funds, it is a monument to the county’s coal miners. The payments come from state coal severance taxes generated by the county’s hardworking miners and it is paid for by state money from coal severance taxes. It also stated that state legislators decide how to spend coal severance taxes and that the amount of county money used for the rec center is zero dollars. Ward said that on average, the rec center generates $29,000 above its operating cost, which is used to pay for power bills and insurance for county parks and recreation leagues.
The options for cutting costs were presented, going from being a “near complete shutdown” to cutting spending by $1.3 million, achieved by cutting middle management positions, ending funding for Senior Citizens Programs, cutting garbage pickup, and eliminating the Letcher County Rangers, along with reducing funding by a six month shutdown of the county road department, the elimination of the county employee health insurance supplement and permanent elimination of part-time staff at the Government Television Channel. These cuts would save $1.3 million.
Magistrate Wayne Fleming told the audience he would not respond to Ward’s threats and that he would not vote to increase taxes. He added that Ward’s presentation had not told the complete story and said the insurance tax is very complex and that it will severely impact the Whitesburg Appalachian Regional Hospital as well as Mountain Comprehensive Health. However, Ward said these are non-profits and will not be subject to the rate hikes. Fleming then said Ward had voted against franchising sanitation when it had been proposed several years ago.
Third District Magistrate Woody Holbrook told the court members he feels they need to look to the future and said he would like to hear ideas about raising revenue for the future. He reminded the court of a conversation he had with the Kentucky Attorney General’s office when he was told that the only constitutional duty a magistrate has is to enact a balanced budget.
Ward then asked for individual comments from the large crowd that filled the circuit courtoom. There were several questions about the nature of the occupational tax and who it would affect, and others about the insurance rate tax as well. One woman said the court needs more transparency, although several county employees later reminded the audience that it is common knowledge that the court meets in open session every month on the third Monday of each month at 6:30 p.m. in the Letcher District Courtroom.
The most common theme of public comments was that most people do not favor an insurance rate tax increase. There was also a good deal of comment both pro and con about selling the Letcher County Recreation Center, although it was somewhat de-railed after County Attorney Jamie Hatton explained that selling the center would be nearly impossible because of the way it is funded. In addition to a clause in the loan agreement that would require the court to levy a tax specifically to pay for the center if the county becomes unable to meet the payments, the center is funded by a bond issue that will require the bonds to be serviced by the buyer if it is sold. Hatton said it would require the buyer to borrow the difference between the actual price and the payoff, which would include interest. Several people said they favored selling the center but a significant number of others said it would be foolish, and several said it is worth the cost because of the opportunities it provides for young people, which in many cases, is the only opportunity they have for supervised recreation. Ward said that since the center has been open, incarceration rates for juveniles has dropped considerably and the juvenile case load in district and circuit court has also declined.
Several proposals were made, including one by Dr. John Pellegrini a retired Appalachian Regional Hospital surgeon who lives in Whitesburg. Pellegrini suggested that the county have two cycles of property tax collection annually, which he said will not bring in more revenue, but the funds will be available year-round instead of waiting until November.
Other audience members asked for clarification on various issues regarding the tax plans and Captain Barry Engle of the Letcher County Sheriff ’s Department said it just makes sense to him that the occupational tax, which is projected to raise $1.5 million and will be available much sooner than the other two revenue-raising plans, is the way to go. He added that it is countywide and would be more equitable than the insurance tax, which will only affect people with certain types of insurance and will also only raise about half the required amount. Engle’s suggestion was mostly well received and several people in the audience applauded his proposal.
Ward said he would place the occupational tax question on the agenda for the next meeting and then asked the court to hold another vote for the insurance premium rate tax because of an impending deadline for passing one, if it was passed. The vote was unanimous to reject it.