Thesecond meeting of the Interim Joint Committee on Local Government was held on Wednesday, September 24, 2008, at 10:00 AM, in Room 171 of the Capitol Annex. Senator Damon Thayer, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Damon Thayer, Co-Chair; Representative Steve Riggs, Co-Chair; Senators Julian M. Carroll, Ernie Harris, Elizabeth Tori, and Johnny Ray Turner; Representatives Ron Crimm, Mike Denham, Ted Edmonds, David Floyd, Derrick Graham, Richard Henderson, Charlie Hoffman, Dennis Keene, Adam Koenig, Tom McKee, Brad Montell, David Osborne, Arnold Simpson, Ancel Smith, Ken Upchurch, and Jim Wayne.
Guests: Representative Jimmie Lee; Matt Wyatt, Bill Bennett, Steve Atcher, Rudy Mays, and Tim Walker, Elizabethtown citizens; Ken Warden and Jim Schack, Northern Kentucky Association of Realtors; James Sharp, Kentucky Association of Realtors; Richard Moloney, Bill Swope, George Mann, Rose Baker, and Dawn Bellis, Department of Housing, Buildings & Construction; David Willmoth, Mayor, City of Elizabethtown; Larry Klein, City of Covington; J. D. Chaney and Bert May, Kentucky League of Cities; J. David Carter, AIA Kentucky; Ned Sheehy and Bill O’Mara, Lexington-Fayette Urban-County Government; Tom Troth, Kentucky Association of Counties; Greg Engleman, City of Erlanger; and Jeff Bechtold, Northern Kentucky Area Planning Commission.
LRC Staff: Mark Mitchell, Joe Pinczewski-Lee, John Ryan, Dave Nicholas; Jack Kennedy, and Cheryl Walters.
Upon the motion of Senator Harris, seconded by Representative Crimm, the minutes of the June 25, 2008 meeting were approved.
The first order of business was discussion of city classification. Chairman Thayer recognized Representative Jimmie Lee to address the committee. Representative Lee told the committee that the General Assembly has never acted on Section 156A of the Constitution, which was to devise a new system of city classification. He noted that a lawsuit has been lodged against the City of Elizabethtown challenging the appropriateness of its current status as a city of the fourth class when it has the population to be classified as a city of the second class under the present classification system. Representative Lee stated that he sponsored a resolution during the 2008 session that would create a task force to study city classification. He said that the resolution failed to pass.
Representative Wayne asked why cities are classified. Representative Lee replied that is one of the questions that needs to be answered. He said it his hope that by creating a task force to study city classification, that those types of questions can be answered.
Representative Simpson commented that classification is a relic of the past and should be scrutinized and reviewed. He commended Representative Lee’s efforts. He noted that different classes of cities can enact different kinds of taxes.
Representative Montell commented that he thought it was a good idea to study city classification.
Chairman Thayer pointed out that a similar situation has occurred in his and Representative Hoffman’s district where the leaders of the City of Sadieville sought reclassification as a city of the fifth class but does not have the required population. He continued to say that the City of Georgetown has the population to be reclassified as a city of the second class but is not interested in being reclassified.
Chairman Thayer next recognized Mr. J. D. Chaney with the Kentucky League of Cities (KLC). Mr. Chaney told the committee that the League supported Representative Lee’s resolution during the 2008 session. He explained that classification has gone by the wayside. Mr. Chaney stated that the League continues to support Representative Lee’s efforts.
Chairman Thayer asked if the League had a proposal or recommendation on what should be done regarding city classification. Mr. Chaney replied that Representative Lee’s efforts will stimulate some lively discussion among the members of KLC. He said the League has no formal proposal, but that classification should probably be done away with, and cities should be able to use their home rule powers.
Representative Simpson commented that any kind of proposals should start with KLC.
Chairman Thayer suggested that KLC should come before the legislature with recommendations.
Chairman Thayer next recognized Mr. Steve Atcher, Mr. Bill Bennett, and Mr. Matt Wyatt, citizens of the City of Elizabethtown. Mr. Bennett told the committee that they were present because the General Assembly failed to act upon the requirements of Sections 156a and 156b of the Constitution that the voters of Kentucky approved in 1994, thus leaving Section 156 intact and still the law of the land concerning city classification. He noted that it is the unpopular restaurant tax that the Elizabethtown city government passed, under the guise of tourism, which has precipitated their actions.
Mr. Bennett stated that their research concerning the classification laws of Kentucky have shown that Elizabethtown, with a population of almost 25,000, is masquerading as a city of the fourth class when in actuality, based on population, Elizabethtown is a city of the second class. He said it is their hope that the legislation of the Commonwealth holds Elizabethtown and other cities across Kentucky accountable with regard to the classification laws. However, Mr. Bennett noted that this cannot be done until the General Assembly finishes what it started, which would be crafting clear and concise classification laws based on population, and not on the whims of local elected city officials and tourism boards.
Mr. Atcher told the committee that three city councilmen and the mayor of Elizabethtown were able to exploit municipal restaurant tax law due to the incompletion of the work assigned to the General Assembly in 1994. He added that there is another ramification of the unfinished work of Section 156a. By refusing to reclassify Elizabethtown from a city of the fourth class to a city of the second class in accordance with its population, Mr. Atcher pointed out that Elizabethtown’s mayor may continue to run for an unlimited number of consecutive terms of office, whereas as a mayor a city of the second class city may serve only three consecutive terms. He added that Elizabethtown’s mayor is now in his third consecutive term.
Mr. Atcher explained that on June 1, 2007, a group of Elizabethtown citizens petitioned the mayor and the city council to reclassify Elizabethtown properly as a city of the second class. In spite of this petition, he said the mayor and city council again refused to reclassify properly. Mr. Atcher stated that in October of 2007, three city councilmen and the mayor of Elizabethtown voted to impose a restaurant tax ordinance only authorized for cities of the fourth and fifth classes in a city that has the population to qualify as a city of the second class. He pointed out that this action generated a lawsuit against the city by a group of Elizabethtown citizens. The suit asked the judge to place an injunction against the restaurant tax and to direct Elizabethtown to reclassify as a city of the second class. The judge ruled she could not enjoin the tax because she found that only the General Assembly could resolve a city classification matter. So, it really is up to the General Assembly to fix the city classification system of this Commonwealth to prevent further occurrences of events like what happened in Elizabethtown.
Mr. Wyatt asked the committee if cities can just pick and choose between classifications, how can a citizen of any city in the Commonwealth understand under which laws their city government must operate. He said the entire Commonwealth is open to controversy and the abuse of municipal laws if this situation is allowed to continue. Mr. Wyatt recommended that the General Assembly do two things: (1) amend KRS 81.032 to require cities to reclassify immediately to the classification they belong to, per Section 156 as of this date; and (2) complete the work mandated to the Kentucky General Assembly by Section 156a of the Kentucky Constitution by defining a mandatory city classification system to which every Kentucky city must adhere, in order to eliminate any future city from cherry-picking whatever classification it wants.
Representative Riggs told the panel that they need to be in front of the city council or run for city council and mayor. He said that under current law the legislature cannot change Elizabethtown’s classification unless the city council tells them too.
Mr. Atcher suggested that the legislature change the classification law to make it clearer.
Senator Tori commended the panel for its efforts and stated that city classification is a very complex issue. She said she feels sure that a resolution can be made to solve this problem. Senator Tori agreed that there should be clear-cut rules and guidelines for classification. She suggested that the panel talk to the legislature when it has a proposal.
Representative Simpson suggested that the panel urges its leaders to revise KRS 81.032, which relates to the requirements for reclassification.
Representative Henderson stated that the legislature is reluctant to get involved in local control.
Representative Graham suggested that the panel work with their local officials. He said this issue should be resolved at the local level.
Senator Carroll asked each member of the panel if they would support giving cities of the second class the ability pass a restaurant tax. When asked to provide a “yes” or “no” response, Mr. Atcher did respond affirmative or negatively. Mr. Bennett replied that the voters should be given the opportunity. Mr. Wyatt replied, “No.”
Chairman Thayer recognized Mayor David Willmoth, City of Elizabethtown. Mayor Willmoth told the committee that the citizens should know what other regulations are out there for other cities before we have classification legislation. He said cities and counties should have flexibility. Mayor Willmoth stated that the City of Elizabethtown sees the restaurant tax as an economic tool to bring commerce to the community.
The next order of business was discussion of occupational license fees. Chairman Thayer recognized Mr. Ken Warden, Chair of the Northern Kentucky Association of Realtors. Mr. Warden first provided the committee with a brief background and update on where the realtors are with this issue. He emphasized that realtors strongly believe in paying all business and payroll taxes owed in a timely and accurate manner, and are not attempting to exempt themselves from what they lawfully owe. Mr. Warden said they do, however, feel that the current method of paying occupational taxes could easily be improved.
Mr. Warden told the committee that occupational license. tax issues impact businesses throughout Kentucky. He noted that in Northern Kentucky, where the assessment of occupational licensing taxes is predominant, it has become a very complex and difficult system for most businesses to comply with. Mr. Warden pointed out that this system must be simplified, especially as more and more municipalities adopt this type of system. He explained that the way taxes are collected varies from city to city and county to county as well as varying tax rates, filing deadlines, and who is required to file. To further complicate the matter, Mr. Warden said each municipality has a different tax rate and reporting form. He added that in many instances, the cost of having the tax forms prepared is more than the tax due.
While there has been some progress in their communities to work together and get each county use one form, Mr. Warden stressed that with 120 counties in Kentucky, this simply is not the solution. He mentioned that in Northern Kentucky, many of their businesses work across several city and county lines and are required to file with each local government where they conduct business. Mr. Warden told the committee that last year, the realtors proposed legislation that would establish an online reporting system for all municipalities that would allow businesses who conduct their business on a multi-jurisdictional basis to go to one website and complete their return. He noted that there was some misconception to that bill in that people thought that all of the money would go to Frankfort and some of the municipalities would not receive the money to which they were entitled. Mr. Warden emphasized that centralized collection can accomplished by having the funds automatically distributed to the appropriate local bank accounts. Through this system, he said local municipalities can receive their funds within 48 hours of payment.
Mr. Warden explained that the system would be available for audit by local jurisdictions, and the realtors believe it would reduce tax collection costs for local jurisdictions and encourage filing by more businesses. He said the cost of creation and maintenance of this system could be offset by a file fee, saving independent business people tremendous paperwork and preparation expense. Mr. Warden pointed out that the realtors are currently working with Kenton County to improve that county’s system and it is the realtors’ hope that their efforts can be expanded to the entire state.
Representative Simpson asked if Kenton County’s system could be used as a model for other counties. Mr. Warden replied that it would be part of the solution, but that it still goes back to doing everything with paper.
Mr. Jim Schack, President of the Northern Kentucky Association of Realtors, told the committee that this system is just not for realtors, but for small businesses as well. He said the process needs to be simplified so more people can be in compliance.
Representative Simpson suggested that the realtors work with the local officials.
Representative McKee asked what the opposition to the system was. Mr. Warden replied that people thought the money would go to Frankfort and never make it back home.
Senator Carroll suggested that enabling legislation be passed for cooperative effort.
Representative Keene stated that he sees their frustration. He asked if Campbell County Judge/Executive Pendery was in favor of the system. Mr. Warden replied that they have met with Judge Pendery, but it goes nowhere.
The last item of business was review of Kentucky Administrative Regulations 815 KAR 7:070, relating to the Kentucky Certified Building Inspector Program, and 815 KAR 7:125, relating to the Kentucky Residential Code. Chairman Thayer introduced Mr. Richard Moloney, Commissioner, Mr. George Mann, Deputy Commissioner, Division of Building Codes Enforcement, and Ms. Dawn Bellis, General Counsel, Department of Housing, Buildings and Construction.
Representative Riggs recommended that the panel consider language to be included in the 815 KAR 7:070 to require the appropriate surety bonding of inspectors in order to protect the property owners. The panel agreed to review the language recommended by Representative Riggs.
Representative Edmonds thanked the panel for all of the help they have given him to in turn help his constituents.
Representative Denham asked if there was a change in the fee schedule listed in the building code. Mr. Mann replied that there was no change and that the fee schedule was already in the building code.
Regarding 815 KAR 7:125, Representative Riggs requested that the minutes reflect that the fire protection community is concerned that the regulation would hamper their efforts at providing for fire safety.
Chairman Thayer announced that the next meeting of the committee would be held on October 17th in Louisville at the Kentucky League of Cities’ annual convention.
There being no further business, the meeting was adjourned at 12:00 p.m.