Lexington council to consider 4% increase in property tax revenue

LEXINGTON, KY – The Lexington-Fayette Urban County Council is preparing for a critical work session on Tuesday, where they will discuss the implications of Kentucky Revised Statute (KRS) 132.020 and ad valorem tax options for Fiscal Year 2024. The presentation on ad valorem taxes is a key item on the agenda.

Understanding KRS 132.020

KRS 132.020, effective as of March 24, 2023, details the annual ad valorem tax rates for various types of property within the Commonwealth of Kentucky. The statute includes specific tax rates for real property, historic motor vehicles, machinery engaged in manufacturing, commercial radio and television equipment, operating property of railroads, goods held for sale, and other categories.

One of the most significant aspects of KRS 132.020, referred to as HB 44 in the presentation, is its impact on local governments. The statute caps the amount that local government revenue can increase per year. Even if property values rise significantly, local governments must adjust rates downward or risk a recall vote. This provision has recently come into focus in Fayette County, where residents attempted to petition to recall a school board revenue increase but fell short of obtaining enough signatures to get it on the ballot.

Ad Valorem Tax Options for Lexington

The work session will also explore ad valorem tax options for Lexington’s General Services Fund and Urban Services Fund.

For the General Services Fund, three options are under consideration:

  1. Option 1: Maintain prior year rates.
  2. Option 2: Select the “compensating rate”, providing approximately the same revenue as the previous fiscal year for existing property.
  3. Option 3: Select the HB 44 rate, providing a 4% revenue increase from existing real properties.

The administration recommends Option 3, the HB 44 allowable 4% increase, with an impact on the budgeted fund balance of $139,800.

General Services Fund ad valorem options. Rates marked with an * are subject to Voter Recall. (LFUCG)

For the Urban Services Fund, five options are under consideration:

  1. Option 1: Maintain prior year rates.
  2. Option 2: Select the compensating rate.
  3. Option 3: Select the 4% increase rate.
  4. Option 4: Move to the cost of service rate.
  5. Option 5: Hybrid rate to move Street Lights to Cost of Service and maintain the FY 2023 rate for Refuse Collection and Street Cleaning.

The administration recommends Option 5, the Hybrid rate, which will bring in an additional $2 million in revenue to match current expenses for street lights. This recommendation represents a rate increase over the prior year.

Urban Services Fund ad valorem options. Rates marked with an * are subject to voter recall. (LFUCG)

Implications for Lexington and Beyond

The discussion of KRS 132.020 and ad valorem tax options comes at a critical time for Lexington and other local governments across Kentucky. The constraints imposed by the statute present challenges for local officials seeking to navigate fiscal responsibilities, economic development, and community needs.

The work session promises to be an informative exploration of complex tax options and statutory regulations that play a significant role in the fiscal landscape of Lexington and the broader Commonwealth. It highlights the delicate balance that local governments must strike between generating necessary revenue and adhering to state-imposed limitations.

The session is open to the public, and residents interested in understanding how KRS 132.020 and ad valorem taxes affect Lexington are encouraged to attend. As local governments continue to grapple with these complex issues, the insights and decisions emerging from Tuesday’s work session could have far-reaching implications for Lexington and other communities across Kentucky.

The work session will take place at 3 p.m. on Tuesday, August 15 in Council Chamber.

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