Leaders of the Kentucky legislature have proposed revising the state’s tax code, cutting $105 million in state revenue largely by changing how local banks get taxed.
The move comes as Kentucky struggles with a massive pension debt that requires the state to put record amounts of money into the pension systems and as the state consistently has trouble generating enough tax revenue to pay for expenses.
House Speaker David Osborne, a Republican from Prospect, said that the local bank tax break will be expensive, but worth it.
“I think when you look at the overall impact on communities and job losses and the loss of availability of capital in those communities, I think that it is a fairness issue that we have to tackle,” Osborne said.
Banking industry advocates say the bill would make local banks more competitive with surrounding states.
The changes allow banks based in Kentucky to pay the corporate income tax instead of the bank franchise tax, which is tied to how much money a bank has.
The language was included in House Bill 354, originally described as a “cleanup” bill to the two-year tax bill that passed out of the legislature last year.
The bill also exempts nonprofits and university sporting events from paying taxes on admission tickets and adds several corporate tax exemptions.
The proposal does not include a tax break for donations made to private school scholarships, despite worries from opponents to that measure.
The changes were approved by Republican and Democratic leaders of both the state House and Senate, and will have to be voted on by both chambers.
Sen. Morgan McGarvey, a Democrat from Louisville, said that the measure would stop local banks from being sold to out-of-state institutions.
“They continue to pay that other state’s taxes while they control the capital that is invested in those Kentucky banks. And this will hopefully make the Kentucky community banks competitive with our surrounding states,” McGarvey said.
The move also comes as lawmakers move forward with House Bill 358, which would allow Kentucky’s regional universities and other quasi-state agencies to leave the state’s pension system in exchange for a lump-sum buyout.
Critics of the measure say it would deprive the pension systems of much-needed funding.
According to a Pew Charitable Trusts study Kentucky has failed to generate enough revenue to meet budget demands in 10 out of 15 recent fiscal years.