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Council budget committee advances ordinance to raise insurance premium taxes

Tax ordinance sponsors Councilman Bill Hollander, D-9, and Councilman Markus Winkler, R-17 | Photo by Joe Sonka

Louisville Metro Council’s budget committee on Thursday advanced a proposed ordinance to raise the tax rate on most kinds of insurance premiums over the next four years.

The measure is an effort by council Democrats to find a compromise where a mix of cuts to city services and new tax revenue can fill the $35 million budget shortfall looming in next year fiscal year.

The proposed ordinance no longer triples such tax rates to 15 percent within four years — as Mayor Greg Fischer and the five Democratic sponsors first proposed — but has been amended to double them to 10 percent by the 2022 fiscal year.

Passed by a 7-4 vote along partisan lines — with the exception of Councilwoman Paula McCraney, D-7, who voted against it — the amended ordinance closely resembled a plan submitted by ordinance sponsor Councilman Markus Winkler a week earlier, which hoped to find a balance of budget cuts and tax increases that weren’t as steep as the mayor had first presented.

If passed by the full Metro Council next week, the ordinance would raise the tax rate on insurance premiums — with the exception of health and vehicle insurance — from its current 5 percent to 9.5 percent beginning July 1. The ordinance also authorizes Metro Government to raise the tax rate to 9.75 percent in the following years and to 10 percent in the following two years.

Winkler’s plan to add a new 3 percent tax on rental cars wasn’t included in the ordinance passed Tuesday, though he said he would file a separate ordinance to do so on Monday. His plan to slightly raise the tax rate on vehicle insurance premiums two years from now was also missing.

In the Democratic caucus meeting before the budget committee advanced the ordinance, Winkler said the two different tax increases would raise over $20 million next year, which means that Metro Council would have to find $15 million to cut from next year’s city budget.

Fischer will release his proposed budget for next year in April and the council must pass a budget before July, where those specific cuts must be identified.

Winkler also explained that the absence of a slight increase to the tax rate on vehicle insurance premiums in 2021 would mean that the city would have to come up with $25 million in additional cuts in 2022 and 2023.

Tuesday’s vote follows scores of special public meetings on the issue since Feb. 7 when Fischer first warned of “devastating cuts” to city services and massive layoffs that would have to take place if the city did not find new revenue to plug a $65 million hole within four years.

The mayor has pegged the crisis on Frankfort, blaming the Kentucky Retirement Systems for mandating rapidly increasing the city’s pension payments for local workers and limiting the ways in which the city can legally raise tax revenue.

Republican council members and several Democrats criticized Fischer for blindsiding them with the issue in February, and have since accused him of hyping a fake crisis with “scare tactics” in order to raise taxes when the budget shortfall could be achieved with cuts alone. While Republicans have indicated they would release a plan identifying specific cuts that would avoid public safety and libraries, no such plan has been released to date.

Councilman Kevin Kramer, R-11, the chair of the Republican caucus and vice chair of the budget committee, has indicated that none of his party’s members would vote for any tax increase. That means that in order to gain the 14 votes needed to pass next week, the ordinance cannot have more than five of the council’s 19 Democrats voting against it.

This story will be updated.

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