Economists Grapple With Pandemic’s Effects As Ohio Valley Officials Brace For A Fiscal Blow Tuesday, May 26 2020 

Kentucky’s state budget officials told lawmakers Friday that general fund receipts may decline by 495 million dollars next fiscal year. It’s just the latest example of the unprecedented financial hardships ahead for the Ohio Valley’s state and local governments due to the coronavirus pandemic. 

More than 38 million Americans have applied for unemployment insurance in the past nine weeks, about 2.5 million of them in the Ohio Valley states of Kentucky, Ohio and West Virginia. 

Even economists find figures like that hard to reckon with. John Deskins directs the Bureau of Business and Economic Research at West Virginia University. He says the fallout from the coronavirus pandemic challenges standard approaches to economic modelling and forecasting, which rely on recent patterns in data. But data since mid-March are completely unprecedented.

“The notion that the national economy would go from 3-point-something percent unemployment to 20-something over the course of 6 weeks? We’ve never heard of that before!” he said. 

Then there are the unknowns regarding what happens with the virus itself: Will there be a large second wave of infections? When will a vaccine arrive? But even with those uncertainties, economists like Jason Bailey say the outlook is grim. Bailey is the executive director of the left-leaning Kentucky Center for Economic Policy and says even the rosier scenarios in his control forecast show economic conditions will likely be worse than those during the 2008 financial crisis. 

“The control forecast is still a terrible forecast when it comes to the economy, when it comes to the unemployment, when it comes to revenue for government,” he said. “It’s still worse, by far, than anything we’ve seen in our lifetimes.” 

So while details of the economic forecast for Kentucky, Ohio and West Virginia remain murky, the existing data reveal the outlines of mammoth losses that economists and local leaders expect the coronavirus to have on state and municipal budgets. Experts say the unprecedented budget shortfalls could lead to layoffs for public-sector workers like school guidance counselors and city maintenance workers; cuts to funding for local festivals; and the shelving of arts and cultural programming.

Just how big those cuts will be may largely depend on the outcome of the current Congressional debate about further federal aid.

Cities and Towns

Without further stimulus from the federal government, Kentucky cities expect to lose about $85 million between them by the end of the next fiscal year, and as much as $180 million the following fiscal year, according to a survey of mayors conducted by advocacy group the Kentucky League of Cities. 

Mayors reported the shortfalls could result in cuts to parks budgets (85 percent of respondents), public works (80 percent) and police services (54 percent). Of Kentucky’s 416 mayors, 102 responded to the KLC’s survey. 

In recessions, the experts say, education, social services and the arts are the first budget items to go. 

“Some people disagree about whether cities should be in the business of parks and recreation,” said KLC executive director J.D. Chaney. “But if this crisis has shown us anything, it’s that people can work from anywhere. So if you want people to live in your town, you have to make it a nice place to live.” 

A March bill from the federal government, the CARES Act, included $150 billion to reimburse cities for expenses related to the coronavirus. But that funding is limited to cities with more than 500,000 people, leaving small and mid-sized cities worried. Besides, Chaney said, he started hearing from mayors across Kentucky that the issue wasn’t an expenditure problem: It was a revenue problem. Residents weren’t paying their utility bills; property, retail and income taxes were expected to plummet. 

“Before this all came about, we were sort of doing a balancing act to provide services with the limited budget we already had,” said Todd DePriest, mayor of the eastern Kentucky city of Jenkins, population less than 2,000. “Just looking at utilities, we’re somewhere between 10 and 20 percent in terms of collections compared to where we were before. That don’t sound like a lot, but when you’re already borderline operating anyway, it really cuts into what you can do.” 

DePriest has already started making changes: Police cars will receive maintenance less frequently, and purchases like new tires for utility vehicles will be put off for as long as possible. 

Seeking Federal Aid

The state of Kentucky also expects significant revenue loss related to the pandemic. In a recent report, the Governor’s Office for Economic Analysis projected a revenue shortfall ranging from $318.7 to $495.7 million, and fourth quarter totals may be as much as 23.7 percent lower than in the same quarter the previous year.

The shortfall is largely a consequence of skyrocketing unemployment in Kentucky and around the country, with roughly 2.5 million people in the Ohio Valley filing for benefits since mid-March. 

The unemployed, explained Jason Bailey, “Are not buying, so they’re not paying sales taxes, and they’re not employed, so they’re not having income taxes withheld.”

Corporate taxes are also expected to fall short of original estimates, as commercial and industrial activity will likely remain low in the coming months. “If movie theaters start going bankrupt, all of a sudden you’re going to see a lot of urban real estate that’s not paying taxes,” said Rea Hederman of Ohio’s right-leaning Buckeye Institute. 

“As these budget cuts start to come down,” said Policy Matters Ohio executive director Hannah Halbert. “Looking at those cuts through an equity lens, and even just a health-disparities lens, that will tell its own story: What gets cut first, which districts are harmed, and how that deepens or lessens people’s shots at a fair future.” 

Since states and localities have to balance their budgets, the depth of those cuts will largely depend on how much stimulus comes from the federal government. Organizations including the National Governors Association, the National League of Cities and the National Association of Counties have called on Congress to provide additional aid. 

“Many state and local governments are facing a June 30 deadline to adopt budgets,” the groups wrote in their appeal to Congress. “Without federal assistance, states, territories and local governments will be forced to make drastic cuts to the programs Americans depend on to provide economic security, educational opportunities and public safety.”

A $3 trillion bill dubbed the HEROES Act passed the Democratic-led House, but faces opposition in the Republican-led Senate. The 1,800-page bill includes items from the Democratic wish list that will surely face scrutiny, like student loan forgiveness and payments of up to $6,000 per family. Kentucky Republican and Senate Majority Leader Mitch McConnell has expressed skepticism about further spending until there’s more data on the effects of previous bills. 

Proposed Bills Could Expand Louisville’s Taxing Power, Including On Restaurants Monday, Feb 24 2020 

For months, Louisville Mayor Greg Fischer has called for broader taxing power for the city. A pair of bills filed Friday in the Kentucky House of Representatives could grant his wish.

A pension bill that is expected to rise and eat up more of the city’s budget over the next several years is a primary driver in Louisville’s search for new tax revenue.

Last year, the Metro Council shot down a proposal to raise the insurance premium tax, and subsequently cut more than $25 million from the budget, leading to decreased city services.

The House bills take two approaches. One would allow cities to levy a tax of up to 3% on dining out. Fischer previously told WFPL that would be a “relatively easy” option that is already available to smaller cities in Kentucky. The other would put forward a constitutional amendment to allow Kentucky cities to explore other taxing options, including on restaurants.

Stacy Roof, the CEO of the Kentucky Restaurant Association, is against both proposals. But she said the broader constitutional amendment bill is more dangerous “because it pretty much gives every city and county any ability to enact any fees and taxes that it wants to.”

Fischer’s spokeswoman Jean Porter said in an emailed statement that the administration “heartily” supports the amendment, saying it could help Louisville attract jobs and investment. Sarah Davasher-Wisdom, president and CEO of the metro chamber of commerce Greater Louisville Inc, similarly praised House Bill 475.

In an emailed statement, Davasher-Wisdom said the amendment “is necessary to give city and county governments in Kentucky increased flexibility in generating revenues and allow them to develop forward-thinking, business friendly tax systems to compete and thrive in the 21st century.”

But Roof questioned the need for either that measure or House Bill 470, the restaurant tax bill, given that Louisville could have a surplus of nearly $19 million this fiscal year. She said restaurants and their patrons are not responsible for the city’s growing pension bill.

“Cities have done a poor job of planning for a rainy day,” Roof said.

City CFO Daniel Frockt recently told the Metro Council’s budget committee that the surplus came from higher than expected corporate payroll revenue as well as a delayed one-time payment from the Jefferson County Sheriff’s office. He said the excess could help Louisville avoid budget cuts this year.

But he said the rising pension bill will continue to put pressure on Louisville’s budget. He said the bill will grow to $141 million, up from $80 million, by fiscal year 2023.

“Even though the revenue forecast is positive, the recurring piece is not enough to overcome the challenges that we’re going to face,” Frockt said.

Roof, of the restaurant association, said taxing restaurants is not the answer. She said that Louisville might raise money from the restaurant tax, but it could impact the other taxes restaurants pay to the city if they have to cut workers’ hours, for example.

She said about 20% of Kentucky’s more than 200,000 restaurant employees are in Louisville.

Louisville Plan To Use Surplus Funds For Pensions Makes Sense, Expert Says Wednesday, Nov 20 2019 

Louisville Metro had a budget surplus of about $4 million from the last fiscal year due to factors including a slowdown in spending and higher-than-expected corporate property tax payments. Now government officials say they want to put most of that money toward paying the city’s increasing pension bill, a strategy one expert said makes sense.

Some of Kentucky’s pensions are among the lowest-funded in the nation, and the state pensions Louisville participates in are less than 60 percent funded.

And city leaders expect that pension bill to rise significantly for the next several years. Some want to raise taxes, but one attempt to do that to avoid budget cuts this year failed and other some other tax options are limited by state law.

Now, with an unexpected $4 million available, there’s talk of using a chunk of those funds to offset the pension bill, which is expected to grow more than $10 million a year for the next several years. The city’s chief financial officer, Daniel Frockt, recently addressed the Metro Council’s budget committee, where he said the administration is suggesting dividing $2.7 million into payments over the next three years.

Frockt said pension payments are projected to take up more and more of the city’s budget in the future, so:

“The thought is that this offset will allow us to kind of manage the reductions needed in a little more humane manner and a little more organized manner,” he said.

Essentially, putting what may look like a drop in the bucket of estimated pension payments toward the total sum could help cushion the blow to the city’s budget later on.

But will it work?

“Using surplus budget monies is an effective way, a tried-and-true way, to deal with the problem,” said Keith Brainard with the nonprofit National Association of State Retirement Administrators.

Brainard said pension plans in Hawaii and Rhode Island, for example, have successfully used surplus money to increase their funding levels. But he thinks Louisville still needs a larger strategy for paying the required contribution while maintaining a budget for needed services.

The pension bill for this year is $100 million. City CFO Frockt projected the pension bill will reach $141 million by 2023.

Louisville Metro Government

Gerald Young, a researcher with the non-partisan, nonprofit Center for State and Local Government Excellence, said properly funding the pensions is important because the city has promised certain benefits to retirees. And if the pensions aren’t funded, it could hurt the city’s ability to attract good workers.

“It’s all part of recruiting and retaining a talented workforce,” Young said. “And with the low level of unemployment nationwide right now, that’s something that’s a real challenge for state and local employers competing with the private sector.”

Late last week, lawmakers introduced an ordinance with details of the proposal to allocate $2.7 million to a pension mitigation fund starting with the next fiscal year. They also recommended using some of the city’s surplus funds to move up a police recruit class after one was canceled amid budget cuts this year, and shore up the Rainy Day Fund. Lawmakers are expected to take a final vote on the allocations next month.

Metro Council Approves Fee Hike For Struggling Public Golf Courses Thursday, Oct 10 2019 

The Louisville Metro Council voted Thursday to increase fees for public golf courses, most of which have failed to break even or make a profit in recent years. The ordinance had more than 15 sponsors, an indication of broad support across most of the council.

The measure raises base daily fees by $5 across the city’s 10 public courses.

It also allows the golf pros who manage the city-owned courses to adjust rates up or down in response to factors including weather and low demand, a process called dynamic pricing. They may also choose to close courses from December to February, except for Seneca, Vettiner, Iroquois and Quail Chase.

The ordinance also includes new quarterly reporting and transparency requirements.  The contracts for golf pros are currently opaque, according to the Courier Journal.

Lead sponsor Cindi Fowler (D-14), addressing a question from a Parks and Sustainability Committee meeting last week, said that she has signatures of support from more than 5,000 Louisville golfers who would be willing to pay the additional $5 a day.

“I think it’s so important that we try to do what we can to keep things as normal as possible in this budget crisis that we’re in,” she said.

The fiscal sustainability of the golf courses is key to their survival as Louisville faces an increasing employee pension burden, which could result in additional budget cuts in the future.

Council members voted 22 to 1 to pass the ordinance. Bill Hollander (D-9) voted against the measure. He is the sponsor of another ordinance that would let Metro contract with outside agencies to manage the courses. The city is requesting proposals from such vendors through Oct. 15.

Metro Council Could Raise Fees To Save Unprofitable Public Golf Courses Thursday, Oct 10 2019 

Most of Louisville’s 10 public golf courses are losing money. That’s why some of them were at risk of closure as city leaders considered cost-saving measures for this year’s budget. Now, officials are considering two options to keep the courses open.

The first, a plan to allow public golf courses to raise greens fees and adjust pricing based on demand, will likely face a Metro Council vote Thursday evening. That’s despite a deadline next week for a request for proposals from outside management companies that the mayor’s office put out in September.

The ordinance suggests raising daily fees by $5.

With employee pension costs expected to continue rising for several years, officials are looking for new sources of revenue in general. And raising fees could be one way to keep golf courses open.

At a recent Parks and Sustainability Committee meeting, chair Cindi Fowler (D-14) said she wants to keep golf in Louisville as close to the same as it is now.

“The green fees alone will raise $1 million,” Fowler said, calling it a conservative estimate. She said finding savings in maintenance costs could also help make up some of the losses.

A third-party report shared in August by the Louisville Parks and Sustainability Department showed that six of the city’s 10 public golf courses failed to break even or make a profit in fiscal year 2018. It said the courses lost more than $2 million that year.



081519 Louisville Parks and Recreation Presentation JUNE 7 Copy Copy (Text)

When asked by council member Bill Hollander (D-9) whether anyone has analyzed how higher rates would impact rates of play, Fowler said she did not know what the effect would be. Hollander is the sponsor of a different ordinance that would allow Metro to contract with outside management companies.

Jay Karen, the CEO of the National Golf Course Owners Association, said the proposed changes are reasonable.

“It makes fundamental sense as a business to do that,” he said. “If they haven’t been doing it, then they’ve been missing out probably on revenue for years.”

He also said if the city decides to enter contracts with outside management firms, those companies could implement higher fees and dynamic pricing, just like what Fowler’s ordinance proposes.

“That’s what a lot of management companies do, that’s the expertise they’re hired for. So it’s just a matter of do they want to maintain full control or turn it over to a company that makes its living running golf courses,” Karen said.

The deadline for outside management companies to submit proposals to Louisville Metro is Oct. 15, 2019.

Eyeing More Cuts, Some Metro Council Members Call For More Local Taxing Options Thursday, Oct 3 2019 

Louisville leaders have about six months before Mayor Greg Fischer’s next budget proposal, which could cut another $10 million. That’s on top of the more than $25 million officials cut this year.

Those cuts are driven in large part by a growing pension bill from Frankfort that will continue rising for the next few years. Some Metro Council members are concerned about the city’s limited options for avoiding cuts for years to come.

A common complaint from local officials is the way state law constrains which taxes they can levy. For example, Louisville can’t tax restaurants or impose a local option sales tax.

Budget committee chairman Bill Hollander (D-9) said Louisville needs to raise taxes to offset another round of cuts. That’s despite the fact that earlier this year, lawmakers blocked a proposal to raise the insurance premium tax.

Hollander said he is hopeful that the Kentucky General Assembly will make some beneficial changes — especially because many cities across the state are feeling the crush of an increasing pension obligation.

“Revenue diversification, giving cities more options, is something that mayors and city council members throughout the state are talking about, and we hope for some relief from the Kentucky General Assembly beginning in January,” he said.

But city and county officials have questioned the limits on their taxing abilities before. Why would it be any different now?

“It has been an issue for awhile,” Hollander conceded. “I think it is more likely now than ever before because of the situation that cities and counties are in throughout the state.”

But Councilman Mark Fox (D-13) is not so optimistic.

“It’s not been done yet,” he said. “I don’t see an appetite for it going forward.”

He said he wants Louisville to be able to apply its own sales tax, which he said would affect everyone equally, based on their spending habits. But he doesn’t expect any imminent changes from Frankfort.

The budget priorities for Fox, a retired policeman, are police, fire, emergency medical services and street paving.

“Then when we see what we’ve got left over, then we look at everything else the government has been doing, we establish a priority list of what our citizens think is most important and we work down that list,” he said.

Both Hollander and Fox are concerned that the city’s budget shortfalls will continue to affect police and other essential departments. Hollander said there will be 70 fewer officers on the streets this year, and that trend could continue without new revenue. Officials cut one recruit class as part of the cuts to this fiscal year’s budget.

Last month, Louisville Metro Police Chief Steve Conrad addressed the Council’s public safety committee about retirements and resignations. He blamed some of these issues on pension concerns and officers seeking higher pay. He also made comments on not being responsible for officers’ low morale; these comments triggered a backlash and prompted a public apology.

Fox said the department needs to make the police department a more attractive place to work. Some, but not all of that, has to do with pay, he said.

Hollander said he is worried that communities are more concerned about the potential closing of amenities such as public golf courses, pools and libraries than about cuts to police or economic development workers who help small businesses stay afloat.

“I think it’s just so important that people understand all of these issues with the budget and not just focus on the shiny ball, the swimming pool, the library, the golf course — all those are very important,” he said. “But folks really need to understand what we did to balance this budget. And there are lots of things that I think long-term are not sustainable for the city.”

Hollander said the budget committee will hold hearings later this month to assess the city’s fiscal performance so far this year and to discuss options for next year. The schedules will be available online.

Under Budget Pressure, Metro Council Approves Property Tax Hike And Property Dispute Settlement Friday, Aug 23 2019 

As expected, property taxes will go up for Louisville homeowners this year, following a vote by the Metro Council on Thursday. That decision preceded a vote during the same session that committed the city to paying out a settlement over a bad public property deal.

With Louisville facing increased — and increasing — budget pressures, costs to taxpayers are likely to continue rising. And some Metro Council members are calling for more oversight.

Some of those higher costs will come in the form of moves like the property tax hike, a measure Mayor Greg Fischer’s office said his budget depended on to be balanced this year.

That will mean a $2.30 increase for a $100,000 house in Jefferson County, and an additional $3.90 for the same house in the Urban Services District. The change is expected to bring in another crucial $1.2 million for the city this year.

Mayor Greg Fischer accounted for that money in his budget proposal for this fiscal year, which cut more than $25 million compared to what was needed to maintain previous service and staffing levels. He said cuts would have been greater if property taxes weren’t raised to this level. Higher employee pension and healthcare costs drove the budget cuts, and are expected to continue rising in coming years.

But council members remain concerned about the cost of poorly-managed property deals to the city and taxpayers .

In a vote to declare the property at 814 Vine St. in Paristowne Point as surplus, Metro Council cleared the way for the city to pay a $150,000 settlement to a would-be developer of the land, which was previously promised to another group. The funds will come from carryover from the fiscal year 2019 budget of Louisville Forward, the city’s economic development agency, which struck the deal.

It’s the latest in a number of recent surplus properties that some Council members have criticized as costing the city, either directly through legal action or through lost revenue when properties were sold at discounts.

Councilman Anthony Piagentini (R-19) blamed Louisville Forward for improperly making a deal when there was already a lease for the property in place.

“We need to correct it and we need to take the leadership on oversight related to this department and what they’re doing so we have more visibility and more comfort to defend these decisions to our constituents,” he said.

He said the state’s economic development agency is subject to more oversight, and that Louisville Forward should get the same treatment.