More than 1,200 local taxing districts that have operated largely without oversight would be watchdogged under a proposal that House Speaker Greg Stumbo intends to personally usher through the Legislature.
The Prestonsburg Democrat filed a measure setting up the new level of oversight on Tuesday, shortly after lawmakers resumed a legislative session following a three-week break.
Stumbo said the legislation sets up a system for auditing the taxing districts, which spend some $2.7 billion a year to operate rural fire departments, airports, sanitation districts, even libraries. It also would create an online database where taxpayers could review financial reports for each taxing districts while also making their leaders subject to ethics rules.
More than 30 Democratic and Republican lawmakers have signed on as co-sponsors of Stumbo’s bill. And Senate Floor Leader Damon Thayer, R-Georgetown, said the proposal has bipartisan support in his chamber, too.
Stumbo, a longtime lawmaker and former state attorney general, said he took up the issue after state Auditor Adam Edelen released a report last year showing the huge amount of money taxing districts collect and spend. A review by Edelen’s staff found Kentucky has 1,268 taxing districts that collect $1.5 billion in taxes and fees each year, plus $1 billion in government grants and private donations. Edelen said the districts also hold $1.3 billion in reserves.
Edelen said the taxing districts represent a “ghost government.”
“It wasn’t too long ago in Kentucky that we had no earthly idea how many special districts there were, where they operated, how they were governed, how much they fee, tax, spend or hold in reserves,” he said.
Some lawmakers, including Thayer, had raised concerns about taxing districts in past years and had called for legislative action. Edelen’s findings generated renewed interest in the issue.
Edelen’s staff found that about 40 percent of the taxing districts required to submit budgets to elected leaders in fiscal year 2011 did not, and just 55 percent with revenues or expenditures exceeding $750,000 underwent annual audits.
Besides improved oversight, Stumbo’s proposal also would create a centralized registry for taxing districts so that taxpayers and government agencies can determine just how many of them exist in Kentucky.
Stumbo and Edelen touted the provision that would require leaders of local taxing districts to undergo ethics training and to answer to a local ethics commission.
“It’s a fundamental bit of commonsense that anybody who has the ability to fee and tax and spend in the name of the taxpayer ought to be accountable to an ethics code,” Edelen said.
Lawmakers have a litany of other issues pending, including a proposal to shore up the financially troubled pension system for government retirees.
Lawmakers want to pump more money into pensions to eliminate a $33 billion unfunded liability, but they haven’t identified where the cash would come from. Some proponents believe that a separate proposal to reform the state’s tax code could hold the answer.
Gov. Steve Beshear, who is to deliver his State of the Commonwealth speech on Wednesday, has urged lawmakers to deal with the pension issue and pass tax reforms this year.
A panel of experts appointed by Beshear to review the state’s tax code proposed a model that would generate about $690 million a year in additional revenue.