The City Commission has informally agreed to raise the occupational tax rate to 1.95 percent while decreasing property taxes by 2 percent to help balance the next general fund budget.
Under the present 1.75 percent occupational tax rate, a $40,000 earner pays the city $700 a year. The higher rate would raise the tax to $780. The owner of a $100,000 home now pays the city $213 in property taxes, and the homeowner would save about $4.26 per year if the rate were reduced by 2 percent.
On March 9, City Manager Fred Goins announced the city faced a $2.7 million deficit in the 2012-2013 budget. However, city management eliminated $1.5 million by transferring costs to other funds, eliminating working spouses from the health care plan and implementing a hiring freeze.
This left the commissioners with a $1.2 million gap to close before the June 30 deadline.
Currently, the city collects about $15.7 million in occupational taxes in the state and private sectors per year and about $3 million in property taxes per year, Finance Director Steve Dawson says.
By increasing occupational taxes – creating about $900,000 in city revenue next year – and decreasing property taxes by 2 percent – eliminating about $190,000 – the city could add about $710,000 to next year’s budget, he said.
By adjusting the local tax rates and suspending the sustainability coordinator position – at least until two other local government entities will share the position’s costs – the commissioners cut the $1.2 million deficit to $424,000.
That amount will be covered by the reserve account – leaving about $8 million in the rainy day fund.
However, the agreement was not unanimous during Wednesday’s specially called meeting. Commissioners Michael Turner, Katie Hedden and Sellus Wilder agreed to the tax swing. Commissioner Bill May and Mayor Gippy Graham opposed it.
Graham moved to accept the budget and the $1.2 million deficit would come out of the reserve account after he suggested that the funds for the sustainability coordinator position be suspended.
“Now is not a good time to be raising taxes on anyone when we’ve got a downturned economy – in my opinion it would inhibit possible economic growth,” May said, agreeing with Graham.
“I’m sure it would not encourage people to come locate their businesses here.”
Dawson said property taxes are one of the most stable income sources for the city’s budget, but the occupational tax ledger fluctuates depending on employment levels.
“I think it’s just simple math – if we reduce our base it will take a larger percentage increase to get back to where we were today – which you can never do … you never recoup,” May said.
“And you’re going to increase occupational taxes that will hit every employee trying to make a living wage who not only live here in Frankfort but are our employees.”
However, Turner said the property tax income is such a small percentage the figure wouldn’t break the city’s budget.
“It’s not a revenue source that is going to get us out of our mess,” Turner said.
Goins said the city has lost about $1 million in the state sector in occupational tax over the last six years. However, while the state government occupational tax base has decreased, the private sector has increased, Turner added.
The commission unofficially agreed – with Hedden, May and Graham in favor – to also eliminate $40,000 – two-thirds of the salary for the newly-created sustainability coordinator.
Wilder, who was against the action, suggested recent budgets have been difficult to balance because of the lack of long-term planning, and a new coordinator for energy savings would help create a long-term plan.
“We put a couple Band-Aids on here and there and get through the budget process,” Turner said against suspending the position.
Wilder moderated the remainder of the meeting after Graham excused himself with severe back pain about two-and-a-half hours into the meeting.
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