County officials back premium tax hike They wonder if 4% increase should be phased in

Jan 14, 2009      Messenger-Inquirer

James Mayse

Jan. 14, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- Daviess County commissioners said Tuesday they favor raising the county's insurance premium tax to pay for downtown development, and the ordinance needed to increase the tax will be introduced at Fiscal Court in early February.

That would put the tax increase on track to take effect on July 1. But commissioners are unsure if they will increase the tax rate by 4 percentage points -- as the Owensboro City Commission plans to do with its insurance premium tax -- or if they will phase it in over two years.

The county has an insurance tax rate of 4.9 percent, and the city's rate is 4 percent. If the county raises its rate by the proposed full amount, the new rate would be 8.9 percent.

"We estimate a similar insurance tax increase by the county will generate $1.5 million to allow for a $20 million bonding capacity," county Judge-Executive Reid Haire said.

Last week, Mayor Ron Payne proposed the city raise its insurance premium tax to pay for the downtown development plan, which includes a convention center, market square and arts academy. The plan calls for $80 million in government investment.

Payne, who attended Tuesday's county work session, said he had heard concerns about raising insurance taxes now, but said "this is the right time" for the downtown project.

Because the insurance tax can only take effect at the beginning of a fiscal year, on July 1, waiting would delay the project by years, Payne said.

"If we don't act ... our next window is July 1, 2010" to enact the increase, Payne said. " ... You're really pushing back two years before you can construct anything."

Haire said county officials have voiced a desire "that whatever tax increase the city recommends, we'll follow" with increase of similar size.

Downtown Development Director Fred Reeves said money will be needed to start engineering work downtown "as soon as possible," and money for property acquisition will be needed this year.

County Commissioner Mike Riney said he favored phasing in the tax increase "over a two- to four-year period."

"I wish both (governments) would look at spreading it over four years, if we can, if the need for funds will allow it," Riney said.

County Commissioner Jim Lambert said his "general support" is to increase the insurance premium tax. Lambert said he favors an "incremental approach" of increasing the tax by 2 percent a year for two years.

County Commissioner Bruce Kunze said he wants to hold public meetings to gather opinions on the tax hike.

"I really want the public to have an opportunity to weigh in on this," Kunze said.

The county will have to notify the state Department of Insurance 100 days before the tax takes effect, so the county would have to pass the ordinance and inform the state by mid-March.

Haire said the county should put a clause in its ordinance that rescinds the tax after the construction bonds are paid.

"I want a future Fiscal Court to bite the same bullet if they want it extended," Haire said.

Riney and Lambert said they supported the idea of phasing in the increase over two years. Payne said he will take the idea back to city commissioners for their consideration.

"I think it's important if we both do the same thing," Payne said.

Gene Hurm, who lives outside Owensboro city limits, voiced opposition at the work session about spending county tax dollars on downtown.

"I'm not for any of this," Hurm said. "I think the city's the city and the county's the county."

Haire said 60 percent of county tax revenue comes from city residents.

George Skiadas, owner of the Famous Bistro restaurant downtown, said he was in favor of raising the tax rates by 4 percentage points, instead of the phased approach.

"If we delay another year, is the value of the money going to be the same?" Skiadas said. "I think this is the best time to do it."

Haire said: "With interest rates as they are now, it might be better business to do the 4 percent."

After the meeting, Haire said public meetings would be held in the county, likely after the ordinance is introduced Feb. 5.

County Treasurer Jim Hendrix will analyze how much money a 2 percentage point tax increase will generate before officials make a decision on a phased approach, Haire said.

"With interest rates at zero percent, there's a financial angle I haven't considered," Haire said.

Some taxes could be exempted from the increase. People who have individually purchased health insurance policies are already exempt by law, and the county has had an insurance premium tax exemption for crop insurance since 1975.

"We'd certainly like to consider an exemption on health insurance premiums," Haire said. Health insurance plans that are provided to workers by employers are not exempt, he said.

"Before we do that, we want to find out what kind of financial impact that would be on trying to put together a $20 million figure," Haire said.

Newstex ID: KRTB-0152-31041296

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