With most Metro Council members opposing a proposal to triple the insurance premium tax to pay for a looming fiscal shortfall, a plan combining a smaller tax hike and budget cuts appears to be more likely.
Budget committee chairman Bill Hollander, of District 9, said members are expected to vote Thursday afternoon on a plan that calls for doubling the tax over the next four years to 10 percent on certain insurance premiums, such as property and casualty.
“This plan does NOT raise enough revenue to avoid cuts in services, not even close,” Hollander wrote in an e-newsletter Thursday morning.
It could include a slight increase in the tax on auto insurance, from 5 percent to 6.5 percent, a measure some Council members who represent lower-income neighborhoods said they cannot support. Hollander said the tax increase would not apply to health insurance premiums.
Mayor Greg Fischer’s preferred solution is to raise the tax on insurance premiums to 15 percent by 2023, to fill a projected $65 million hole caused by rising pension and employee health care costs. Insurance companies would pass that cost on to consumers.
Fischer says the tax increase would help avoid “devastating” service and personnel cuts, which he laid out last month.
But public feedback on the potential solutions has been mixed, with some asking Council members to avoid cuts to needed services at all costs, while others say they do not want to pay higher taxes.
At a special meeting earlier this week, Council members discussed their tolerance for raising the tax versus implementing cuts. Another part of that conversation was the fact that small cities in Jefferson County and other counties in Kentucky already charge higher insurance premium tax rates.
Keisha Dorsey, who represents Shively as part of District 3, said that small city taxes insurance premiums at 10 percent.
In his e-newsletter, Hollander laid out potential cuts that could compensate for the smaller tax hike. They include salary cuts or furloughs for Metro employees that make more than $90,000 a year, adjusting the yard waste and recycling pickup schedule and cutting support for suburban fire districts.
He wrote that many of his constituents have told him the proposed cuts are unacceptable.
“On the other hand, I have spent a lot of time with Council members who are unwilling to raise taxes enough to avoid these cuts — and many more that we will have to make,” he wrote.
The budget committee is expected to pass a version of the tax hike ordinance Thursday, in order for the full Council to vote on it next week, on March 21, for it to go into effect in the new fiscal year, which begins in July. That is necessary because, although Louisville has the authority to change the insurance premium tax without state approval, the city must provide 100 days’ notice to the Kentucky Department of Insurance, per state law.
Although the Council could decide how much the tax will be raised by next week, specific cuts to the budget will not be determined until later. Fischer will present a budget to the Metro Council in late April, after which the legislative body will have two months to finalize it.