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Fischer Proposes Insurance Tax Increase To Cover Budget Shortfall

Mayor Greg Fischer said that unless Metro Council passes legislation raising the insurance premium tax rate in Louisville, the city will have to slash services and personnel.

Last week, Fischer said his administration expects the city budget to have a $65 million gap over the next four fiscal years, due in part to rising pension obligations. In late 2017, the board of the state's retirement system changed its forecast of the under-funded pension system, which meant a growing liability for cities including Louisville.

On Wednesday, nearly a week after laying out the cuts he said would be necessary to make up that shortfall, Fischer proposed an alternative option: progressively raising the insurance premium tax in the city each year through fiscal year 2023. That, he said, would raise $63 million, allowing the city to avoid massive cuts to city programs and layoffs.

"As mayor, I can tell you, I'm in the reality business," Fischer said at a news conference. "And the reality is this is the best, least painful option open to us from an extremely short list of choices."

The insurance premium tax, which is levied on insurance providers, is currently 5 percent in Louisville, and was last raised from 2.5 percent decades ago, according to the Fischer administration. He proposed increasing the rate to 12.5 percent in the next two fiscal years, which begins on July 1. He suggested the rate should increase to 13.5 percent and 15 percent in the next two fiscal years.

The tax increase will apply to home, life, marine and other insurances. It will not affect auto insurance rates, which Fischer said would be too burdensome for some car owners. He said the average family's home insurance would go up about $12 to $13 a month.

Fischer said the city is limited by the state in which taxes it can levy, and said he would like to see restaurant and local option sales taxes as options for Louisville.

Metro Council President David James, of District 6, said he would file an ordinance to raise the tax on Monday. It will then be assigned to the budget committee. The council must vote to pass the ordinance by March 21 in order for it to go into effect by July 1, per state law.

On Thursday, the city's Chief Financial Officer Daniel Frockt will address the Metro Council's Budget Committee to give an update on the fiscal year so far and to discuss the outlook for the year ahead.

Budget committee chair Bill Hollander, of District 9, told WFPL he thinks Metro Council members want to consider all their options. But he is co-sponsoring the tax legislation.

"The proposed cuts that have been laid out are really daunting, and raise a lot of concerns about the services that we can provide to our constituents," he said.

Earlier Wednesday, Kentucky Governor Matt Bevin, a Republican who is running for re-election, sent a letter to Fischer criticizing the mayor's handling of the pension crisis. At the news conference, Fischer called the letter "ill-informed and political."

"We agree we have a problem on budgets, and let's stop the play time and stop the distractions and get to work on the problem," he said.

Amina Elahi is LPM's City Editor. Email Amina at aelahi@lpm.org.