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Vote close on Louisville's insurance tax hike, but Fischer may have edge

Louisville Courier-Journal logo Louisville Courier-Journal 2/21/2019 Darcy Costello and Phillip M. Bailey
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Editor's note: This story has been updated to reflect additional reporting of Metro Council members' positions on an insurance tax hike.

Louisville Mayor Greg Fischer has a slight party-line edge in securing the 14 Metro Council votes he needs to triple Louisville’s insurance premium tax and tackle the city’s looming $65 million budget deficit.

A Courier Journal survey of the 26-member council shows nine Democrats either supporting or leaning toward supporting the tax hike. An equal number of council members, mostly Republicans, are opposed or leaning against a tax increase.

That leaves seven undecided council members and one — Brent Ackerson — who did not respond to repeated requests for comment. But all are Democrats, as is Fischer, giving the mayor an advantage.

Despite the tight vote margin, even some of Fischer's fiercest critics concede that the mayor's tax hike will be difficult to defeat.

See how Louisville Metro Council members will vote on Mayor Fischer's insurance tax hike

Critics have failed to mount a substantive opposition campaign — in part because of Fischer's abbreviated rollout of his tax proposal that caught skeptics off guard.

He also threatened deep and unpopular budget cuts if the tax hike didn't pass, affecting police, libraries and pools.

"I don't think people want the tax but then again they don't want to lose their essential services," said Louisville GOP Chairman Jim Stansbury, "so we have to have a conversation asking, 'Is that all there is?'"

Last week, Fischer zigzagged across Louisville, hammering the point to residents and council members about the city's stark decision: either accept deep cuts to local services, including public safety, or pass a hike that insurance companies will likely pass on to customers.

Joined by two of the tax hike's co-sponsors, Fischer told more than three-dozen residents assembled at the Berrytown Recreation Center in eastern Louisville that the state's handling of the pension crisis is to blame for the problem.

Louisville budget: Fischer's tax hike will make insurance unaffordable, group says

"We've paid 100 percent of our bills, every time," he said. "But now, by law, we have to pay this bill. So we've got to deal with it. We're laying out options of cuts, or options of revenue."

Since late 2017, Fischer and his team had warned of the city's ballooning pension burden. He often beseeched residents to contact state lawmakers and lobby them to act on reforming Kentucky's retirement system.

But what the mayor didn't tell residents, like those in Berrytown, is that his office rarely discussed in public the idea of raising taxes or fees as a remedy. The Fischer administration waited until five weeks before a strict deadline to present his favored revenue-raising option.

That timing has left Metro Council with a narrow window to vet the plan or to come up with alternatives, and has caught critics of the plan flatfooted as few have appeared able to rally against the measure in any significant way. 

Background: Fischer wants a major insurance tax hike to avoid massive budget cuts

"The more time you have, the better chance you can make a decision you want, instead of the one you're being presented," said Councilman Kevin Kramer, R-11th District, who leads the seven-member GOP caucus.

Louisville Councilwoman Jessica Green, D-1st, said that she isn't sure how she will vote on Fischer's tax hike, but that she is leaning toward voting against the proposal. She said the mayor's timing was "by design." 

"No one wants to be in front of the election talking about raising taxes," Green said. "But they definitely knew the plan after the (November) election, and we as the council and the public were owed an explanation at that time."

'People have had plenty of notice'

The city has projected a $35 million shortfall in the upcoming 2019-20 budget, roughly $20 million of which is attributable to rising pension costs. The pension cost is expected to rise by $50 million by the 2022-23 budget, according to the mayor's office. 

While Fischer addressed the need for more revenue, he made no mention of the insurance premium tax at the annual state-of-the-city address in January, which was about the time when his team was meeting with council members about the shortfall.

A month after the annual speech was delivered to the Rotary Club, the mayor made the first public pitch for the tax hike.

This comes ahead of the March 21 deadline for Metro Council to evaluate and pass his plan in order for it to be applied in the upcoming fiscal year. 

Asked why he hadn't been talking about the revenue options for several months, Fischer said: "People have had plenty of notice."

Former Councilwoman Angela Leet, who lost last year's mayoral race by roughly 25 percentage points, said Fischer deliberately waited to unveil the tax hike months after the election.

She said the mayor should have been more forthcoming with the public about the need to raise local taxes. 

"I think it was deceitful," Leet said. "If he knew there was no other way and if this had been a debated issue, he would have gotten the same irate response I'm seeing now."

Fischer's plan is to triple Louisville's insurance premium tax over the next four years. The tax will be on home, marine and life insurance policies, along with other miscellaneous plans, but he would exempt motor vehicles.

The tax would increase from 5 percent to 12.5 percent in the upcoming budget and the next. It would go up again to 13.5 percent in fiscal year 2022 and finally to 15 percent by fiscal year 2023.

The city's chief financial officer Daniel Frockt said it would increase an average Louisville family's home insurance by $12 to $13 per month by the time the tax hike is fully enacted. That's based on a $1,500 premium for a house worth anywhere from $125,000 to $300,000.

Louisville council members: Mayor pulls 'ambush job' with budget plea

'We're painted into a bit of a corner'

Councilman Markus Winkler, D-17th, who is one of five co-sponsors, said he favors the measure because he wants to be part of solving the problem. He and other supporters of the tax hike say city leaders have known about the severity of the pension costs for more than a year.

"You can't profess that this is a major issue we've got to solve without trying to do that," said Winkler, who took office in January. "I signed up to solve major issues. I don't want to sit around in the background and complain." 

But many of Winkler's fellow freshmen on the council said in interviews with the Courier Journal that they were taken aback by Fischer's urgency, and they now have to play catch-up.

"We’re still trying to digest what a 'no' and 'yes' means," said Councilwoman Keisha Dorsey, D-3rd, one of eight new members this year. "These options never came up during the campaign, and I think that causes concerns across the board. We don’t have a lot of options based on the time frame and we’re painted into a bit of a corner."

Check out: Fischer defends tax plan's effect on business after GLI airs concerns

Councilwoman Donna Purvis, D-5th, a new member who represents the bulk of western Louisville, said she can't say if Fischer purposefully waited to unveil the insurance tax plan until after the election. She said addressing the budget shortfall caused by the pension costs should have been addressed sooner, however.

"Maybe the mayor could have been a little more forthcoming earlier," Purvis said. "I won’t say he wasn’t transparent, but we do have a short time to make a major decision."

Councilman Mark Fox, D-13th, who represents parts of the Fairdale area, said as a new member he would have appreciated more time for discussion. But he said he is leaning toward supporting the tax hike.

"I'm getting a lot of emails and phone calls," he said. "I'd say they're running about 80 to 90 percent opposed, but I do have a fair number of people who say they don't want services cut and things lost."

Fox said as a former Louisville police officer, he was well aware of how the pension bubble was going to burst. He said there are only a handful of ways for the city to raise revenue in the face of this crisis.

"A lot of the messages I'm getting suggest raising taxes on liquor or legalize weed or gambling, and that's a (state) legislative issue," Fox said. "When you boil it down, you've got a bill to pay without a lot of options to make that payment. We knew, at least I knew, going back to 2007 that this was going to be a problem one day."

Opponents plan coming in a few weeks

Fischer's office raised red flags about draconian cuts beginning last year. Officials said that would be necessary without a phase-in of the increased pension obligations.

State lawmakers responded by offering local officials a 12-percent phase-in plan, granting Louisville and other cities a reprieve from those painful cuts.

That capped the city's pension payment increase last year at about $9.4 million, which the city mostly paid for by not filling about 49 departing employees' positions.

But that fix wasn't a lasting solution for this year's budget, as freshman Councilman Anthony Piagentini, R-19th, pointed out during a recent budget hearing. 

"They knew the structural gap was there. They just moved it another year," Piagentini said. "... My new idea is we structurally balance the budget each year and don't do one-time gimmicks, so we don't run into this problem in the future."

He's among a group of critical council members, both Republicans and Democrats, who have been brainstorming ideas for acceptable cuts that they hope could lower the rate of the proposed tax increase. They have not released a public plan, however.

Also: What could a Louisville tax hike on insurance premiums mean for you?

Council Republican spokesman Steve Haag said opponents were working to release a plan in the next couple weeks. 

Fischer, meanwhile, has released a list of cuts the city would face absent a new revenue source. He has said the Louisville police department, for instance, would see a $7.9 million drop in funding that would eliminate three upcoming recruit classes.

Fischer and supporters have challenged anyone with an alternative plan to come forward to say what cuts they prefer.

"I don't think it's responsible to say we can do all of this through cuts, without saying what those cuts are," said Councilman Bill Hollander, D-9th, a Fischer ally who chairs the budget committee.

Piagentini, whose district covers many suburban cities such as Middletown, has suggested trimming the city's spending to cover this year's anticipated $35 million budget gap. He said this is possible by dialing back what he claims is roughly $55 million in growth of "nonessential" departments over the past two years.

Piagentini said those agencies include codes and regulations, facilities and fleet management, economic development, the health department, the city's budget office, and the technology department.

Reversing that growth in the upcoming budget would leave room for a longer look at structural changes in the next year, he said.

"I have proven that we can cut the budget without touching libraries, LMPD, fire or any other critical services," Piagentini said via Twitter. "The mayor's claims about closing libraries are scare tactics."

A combination of taxes and cuts?

Democrats hold a veto-proof majority on the council after picking up two suburban seats during the fall elections. Some in the 19-member majority have said they will support Fischer's tax hike only if it's coupled with a budget trimming.

Councilwoman Paula McCraney, D-7th, said she remains undecided and won't take a stance one way or another until she's heard from constituents. She said she has told Fischer and his team directly that service cuts have to be part of the plan.

"I’ve voiced my belief we should be looking at a combination approach," she said.

McCraney, who represents part of the St. Matthews area, said through emails and phone calls that the overwhelming majority of her residents oppose the insurance tax increase.

Fischer considered about six revenue-generating options, he said at an event this week, and evaluated their feasibility and effectiveness. His administration met with some council members to talk about the options beginning in early January, he said.

Louisville police chief: Budget cuts would be a 'slow train wreck' for police department

Among the options considered: a car rental fee of up to 3 percent that city officials say wouldn't raise enough money; a local franchise fee they say would be an unstable revenue source and wouldn't be levied on suburban cities; an occupational license fee they feared would be unpopular because it's a tax on "productivity"; a restaurant tax that needs state approval; and a taxing district that would be subject to thumbs up from voters. 

"When we went through the conversations with the council, they arrived at the same conclusion that we were at," Fischer said. "... When we took a look at the time required and the amount of money required, the consensus was the insurance premium tax."

Opposition has been mild

The grumblings among critics that Fischer didn't give city lawmakers and residents enough time to digest his tax hike hasn't created a noticeable opposition movement.

Gov. Matt Bevin scolded the mayor for being "oblivious" to the problem, but other opponents have either offered little resistance or have yet to put forward an alternative plan.

Kent Oyler, president and CEO of Greater Louisville Inc., said in a statement the tax hike could hurt the city's ability to recruit and retain businesses and talented professionals. But when asked what the city's chamber of commerce would be doing to combat the mayor's plan, a spokesman said the group hadn't finished surveying all of its members.

Oyler was not available for comment after multiple requests for an interview.

Other political observers have chided Fischer's proposal.

The Louisville GOP "vehemently" opposes the plan, said Stansbury, the chairman. He said there's little to do, however, besides supporting Republicans and wary Democrats on Metro Council who craft an alternative.

"I haven't heard anything yet," Stansbury said. "Obviously there's all kinds of discussions with people trying to figure how to avoid this."

Matt Bevin to Louisville mayor: How could you be 'oblivious' to pension problem

A group representing independent insurers in the state wrote in a letter to Fischer that the industry could face a "market crisis" under the increase. 

And conservative talk show host Leland Conway questioned on his 84 WHAS radio program whether there was "low-hanging fruit" to trim before tripling the insurance tax rate. 

Asked why no critics had made a stronger case against the tax hike, GOP stalwart Bill Stone, a former chairman of the Jefferson County Republican Party, called it an "in-the-weeds kind of issue."

"For most people, their eyes glaze over when you talk pensions and cash flows. I don't think it's an issue that captures the imagination of people," Stone said. "That's why the insurance tax provides the least resistance. ... It's the least worst."

Reporter Darcy Costello can be reached at 502-582-4834; dcostello@courier-journal.com; Twitter: @dctello.

Reporter Phillip M. Bailey can be reached at 502-582-4475 or pbailey@courier-journal.com. Support strong local journalism by subscribing today: www.courier-journal.com/darcyc.

This article originally appeared on Louisville Courier Journal: Vote close on Louisville's insurance tax hike, but Fischer may have edge

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