A priority measure for Kentucky counties cleared the General Assembly Wednesday evening. HB 596, the compromise annexation bill, passed the Senate 36-0 and now heads to the Governor's desk.
Sponsored by Rep. Jonathan Dixon, HB 596 addresses decades-old state laws regarding city annexation and the occupational tax revenue lost by some counties with a population of 30,000 or more. The legislation is the result of the Task Force on Local Government Annexation, which met during the 2023 interim legislative session.
"HB 596 is one of the most significant pieces of legislation affecting counties in a generation," said KACo Executive Director Jim Henderson.
KACo appreciates the countless hours spent by Rep. Jonathan Dixon and Sen. Robby Mills, who co-chaired the annexation task force. We are also grateful for House Speaker David Osborne, Senate President Robert Stivers and key legislators who helped make this happen.
"Counties and cities are stronger when we work together; this legislation seeks to create an environment where both counties and cities thrive as our communities grow," Henderson said.
Download KACo's guide to HB 596 here.
HB 596 – section by section
Section 1 – Consensual annexation
Issue: Currently, there is no requirement that cities notify counties of a proposed annexation requested by a property owner.
HB 596: Requires cities to provide written notice to counties at least 45 days prior to enactment of a final annexation ordinance.
Affected counties: Counties over 30,000 population subject to occupational tax crediting.
Section 2 – Non-consensual annexation: notification
Issue: Currently, there is no requirement that cities notify counties of a proposed non-consensual annexation.
HB 596: Requires cities to provide written notice to counties at least 45 days prior to enactment of a final annexation ordinance.
Affected counties: All counties.
Section 2 – Non-consensual annexation: petition
Issue: Currently, if 50 percent of resident voters or property owners petition the mayor in opposition to an annexation, the annexation is brought to a vote – if 55 percent vote to oppose, the annexation stops.
HB 596: If 51 percent or more of the resident voters or property owners petition the mayor in opposition to the annexation, the annexation process stops. Removes requirement for a vote.
Affected counties: All counties.
Sections 3-4 – Interlocal agreements
Issue: Currently, there is no protection for established interlocal agreements regarding revenue sharing.
HB 596: Prevents any interlocal agreement in existence on or after Jan. 1, 2024 concerning sharing of occupational or insurance premium tax revenue between a city and county from being terminated without the consent of each party.
Affected counties: Counties over 30,000 population subject to occupational tax crediting or counties subject to insurance premium tax crediting.
Section 5 – County standing
Issue: Current statute does not expressly provide legal standing to counties.
HB 596: Expressly provides legal standing for counties to challenge an annexation prior to or within 60 days of enactment of the final ordinance.
Affected counties: Counties over 30,000 population subject to occupational tax crediting.
Section 6 – Revenue sharing
Issue: Currently, there is no requirement for revenue sharing.
HB 596: Absent an interlocal agreement, the bill sets out revenue sharing requirements:
- For properties containing active residential, commercial or industrial uses, the bill creates an enhanced hold harmless period of ten years. Counties would be required to determine the amount of lost revenue based on tax collections from the year prior to the annexation. Cities would then remit 150% of the net lost revenue (occupational license fee and/or insurance premium tax) to the county, minus any increase in property taxes collected.
- For properties not containing active residential, commercial or industrial uses and meets certain other qualifications, as outlined in Section 6(2)(a)(1) or (2), the bill provides a framework for counties and cities to develop an interlocal agreement. If a county and city cannot reach consensus on an interlocal agreement, a default option would apply in which the county and city split costs and revenue sharing 50/50. The city would be required to remit to the county 50% of the occupational tax revenue generated in the annexed area, or an amount equal to what the county would otherwise collect pursuant to its countywide occupational tax rate, whichever is less.
Affected counties: Counties over 30,000 population subject to occupational tax crediting.
Sections 7-9 – County industrial districts
Issue: Currently, counties have no ability to create development districts that cannot be annexed.
HB 596: Allows for the creation of up to two designated county industrial districts, up to 1,000 total acres, that cannot be annexed.
Affected counties: All counties.
