Insurance premium tax increase proposed to help cover $65M budget gap and prevent devastating cuts
Facing devastating potential cuts because of an expected $65 million general fund gap over the next four years, Mayor Greg Fischer is proposing to increase the city’s tax rates on home, life, marine and miscellaneous insurance, such as malpractice, title insurance and umbrella coverage, from their current five percent to 12.5 percent in FY20 and FY21, 13.5 percent in FY22 and 15 percent in FY23.
Auto would be excluded from this increase, which overall would generate approximately $63 million by FY23.
“Louisville Metro Government has proven it is an efficient operation, and our city is seeing a good growth in revenue. But that growth is dwarfed by our increased pension requirements from the state,” said Mayor Fischer, noting that the impact of unfunded pension obligations is expected to grow 12 percent each year through FY23.
That amounts to $86 million in FY19, up from $77 million in FY18, and is expected to grow to $97 million in FY20, then to $136 million in FY23. The estimated gap for FY20 is $35 million, which reflects the additional $10 million pension bill for FY19, another $10 million for FY20, along with $15 million from increased healthcare costs and lower-than-projected revenues.
The Mayor last week detailed the specific potential cuts that would, barring new revenue, have to be made to cover the operating gap and ensure a balanced budget, as required by state law. The potential cuts range from staffing reductions in nearly every Louisville Metro Government (LMG) department, including police, fire and ambulance services, as well as closing library branches, fire stations, health clinics, community centers, pools and city golf courses.
Other potential cuts faced by the city without new revenue include eliminating all Metro funding for agencies like Brightside and the Belle of Louisville, making the Louisville Zoo independently operated, turning Youth Detention Services back over to the state, and eliminating all Neighborhood Development Funds allocated by Metro Council and External Agency Funds allocated to local nonprofits for arts, and social and community services.
The potential cuts amount to 317 layoffs in FY20 alone.
“These cuts will damage our city’s momentum,” the Mayor said during a news conference today, “which is why the Council and I worked together to propose this new source of revenue. This is not an easy choice, but under the circumstances, it’s a pretty clear one. Keep the momentum of our city moving forward – or fall back?”
To illustrate the impact, the Mayor’s proposal would increase the average family’s home insurance by about $12 - $13 a month, or around 40 cents per day.
“It’s important to keep in mind that this pension situation is not something that Metro Council or I created,” the Mayor said. “I appreciate the state’s attempts now to position our pension systems to be structurally sound. But those discussions and actions fall short of addressing the revenue needs of local governments. And Frankfort has refused to allow us the tools and flexibility we need to deal with the obligations they’re imposing.
“We are required by law to pay whatever dollar amount the retirement board sets as our pension obligation, and we’re required to balance our city budget every year,” he said. “We believe this recommendation today is the best way to ensure our city continues to thrive and grow.”
Mayor Fischer developed this proposal in consultation with members of the Metro Council, and he was joined at today’s news conference by President David James, Councilman Bill Hollander, who is chair of the council budget committee, and Council members Pat Mulvihill, Barbara Sexton Smith and Marcus Winkler, who are co-sponsoring the ordinance.
“While I have no desire to raise taxes, I also have no desire to let our great city be pushed backwards and see essential city services eroded and our citizens’ safety be put at risk,” said James. “That’s why I’m a sponsor of this ordinance to raise revenue, and I look forward to working together to find efficiencies in our government to balance our budget.”
Hollander said: “This increased pension cost is far too much to deal with solely by expense reductions. The level of service cuts we would need to implement would ripple throughout the community and seriously set us back for many years, as the downward spiral builds on itself. That is not good policy and not acceptable for the people we serve.”
Winkler agreed: “The budgetary challenges our city faces are significant, and there is no easy fix. The only way that we can meet our pension obligations without draconian cuts to services and reduction or elimination of economy-building programs is through this revenue measure. Though not an easy decision, it is necessary if we want to live in a strong, vibrant Louisville, the kind of place where skilled labor and employers want to move. We cannot achieve that by cuts alone. Investments in services like worker retraining, policing, infrastructure and parks are key to winning the competition with cities like Nashville, Columbus, and Indianapolis.”
Mulvihill said: “It’s unfortunate that we are in this place needing to raise revenue due to the lack of funding of pensions for the last 20 years by Frankfort, but we can’t risk losing 250 police officers and having fire stations shuttered and leaving our most vulnerable residents without the necessary social services to immediately help them and get on a path to improve their lives. We need to ensure that all our children have the opportunity for bright futures, and that is not possible if we close libraries, parks and community centers. Lastly, we need to protect our seniors, and closing senior centers and failing to provide programming for them is simply untenable.”
Sexton Smith said: “Raising taxes to generate revenue for our community is always controversial, and it requires political will and courage to do so. Public safety is our top priority, and financial management is our first responsibility. These are difficult times and I am committed to creating safer neighborhoods, more and better jobs in the neighborhoods, and better services for everyone. Together, we can do this!”
To be effective for FY20, the Council must approve the change and the city must file its intent to raise the tax by March 22.
Mayor Fischer asked residents to carefully review the list of specific cuts the city is facing without new revenue, “and if you, like me, find them unacceptable, please reach out to your Metro Council person and urge them to support this revenue.”