An expensive tax 'reform'

Published:

By Todd Duvall

Theyre coming back!

The 138 members of the General Assembly are due to return to the Capitol some time later this month or early in June.

They have some important unfinished business to transact.

It seems that one of the revenue neutral tax reforms proposed by Gov. Ernie Fletcher and enacted last year turns out to be anything but neutral. The alternative minimum tax on businesses mainly small businesses is hitting even those that arent profitable.

Thats like getting a state income tax bill even if you earned no income last year.

It goes without saying that unprofitable businesses getting tax bills is not popular among those receiving the bills.

But the House and Senate were unable to agree on a way of relieving the problem before they adjourned last month, so Fletcher is going to call them into special session to resolve the issue.

The rule of thumb is that each day the legislature meets costs $50,000, give or take a few thousand. At that rate, the 60-day regular session of 2006 cost $3 million, give or take a hundred thousand or so. And in those 60 days of work, senators and representatives busied themselves with the official state dance and a historic level of new debt, but could not correct a critical mistake they made in tax reform last year.

Fletcher isnt expected to call the special session until the House and Senate agree on what should be done. The problem apparently is how much to cut the alternative minimum tax and at what profit level businesses would not quality for paying it. Demanding a solution before the General Assembly meets at least means legislators wont be sitting around waiting on a decision all the while spending $50,000 a day.

Still, if the special session lasts a week, the cost to the taxpayers will be $250,000 to $300,000 all because they could not do their job when they should have done it.

Indeed, if you throw in the cost of the 2005 session that made the tax mistake with the cost of the 2006 regular session that could not correct it and the 2006 special session to finish the job, getting the alternative minimum business tax right turns out to be one expensive tax reform.

University of Louisville President James Ramsey may have set a new standard for university presidents getting their way in future state budgets: When you lose, especially with a gubernatorial veto, simply throw a public tantrum.

Thats pretty much what Ramsey did after Fletcher vetoed more than $70 million in projects for the University of Louisville. Fletcher made the mistake of tying the vetoed projects to the $75 million in the new budget for a $400 million downtown Louisville arena.

At a press conference, Ramsey suggested UofL just might keep playing its basketball games at Freedom Hall instead of becoming the key tenant in the new arena.

That, of course, would have scuttled the arena altogether.

Well, Ramsey and Fletcher had a 90-minute, closed-door heart-to-heart talk last week and Ramsey emerged Presto! with many of his vetoed projects intact, but with some creative new financing options that wont cost the budget any money.

And in turn Ramsey announced the UofL couldnt wait to play basketball in the new arena.

The apt question, of course, is if it were possible to finance the vetoed projects without state funding, why wasnt that route taken in the first place?

Still, Ramseys tantrum success raises all kinds of future possibilities. University presidents who lose projects from state budgets can hold Ramseyesque press conferences, issue veiled threats and come to the Capitol for a lesson in creative financing.

This whole university projects business is one reason the General Assembly has resisted efforts to allow state universities to issue bonds to pay for projects without legislative approval. Ramseys tantrum probably set back that effort for another decade or more.

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