The unfair effects of Kentucky’s antiquated annexation laws were the focus of the latest meeting of the Task Force on Local Government Annexation. Three county officials and five mayors testified before state lawmakers last week.
“Counties want cities to grow. We want cities to prosper but not at the expense of county government,” said Warren County Attorney and KACo President Amy Milliken. “No one here today is responsible for what’s going on. This is just how the law was written a long time ago.”
Under current state law, counties with a population of 30,000 and above that levy an occupational license fee lose that revenue to city governments when a city expands its boundaries via annexation. County officials say that loss of revenue can hinder their ability to provide the required constitutional and statutory services that benefit all residents, regardless of whether they live inside or outside corporate city limits.
The crediting of occupational license fee revenue from counties to cities does not apply to counties with a population fewer than 30,000 or to nine counties – Boone, Boyle, Campbell, Clark, Jessamine, Kenton, Marshall, Nelson and Scott – that were grandfathered in for varying reasons.
Scott County, for example, has a population of 58,000 and collects occupational license fees in the city of Georgetown. Milliken told the task force that if the same rules Warren County must operate under applied to Scott County, that fiscal court would lose about $12 million a year in local tax revenue.
Todd County Judge/Executive Todd Mansfield echoed those concerns about unfair treatment in state law. As a county with fewer than 30,000 people, he does not have to credit cities on the occupational tax. In fact, Mansfield explained that both the county and city occupational tax streams were critical to the financing package for Novelis, an aluminum manufacturing company that is building a new recycling center in the city of Guthrie.
“[Local governments] are encouraged to think regionally, and we do. It seems odd that my neighbors like Christian and Muhlenberg County do not have the same rules apply to them,” Mansfield said. “They do not have the same tools available. Why?”
A common theme from the task force presenters was the need for and advantages of cooperation between city and county officials. Shelby County and the City of Shelbyville have an interlocal agreement established in 2019 that involves a 50/50 split of occupational license fees and sharing the net profit license fee.
“Annexation often leads to an expansion of the city’s tax base resulting in increased revenue from property and occupational taxes,” Shelbyville Mayor Troy Ethington said. “Sharing a portion of these taxes with the county could be seen as a fair compromise as the city benefits from the annexed area’s growth and development. [An] interlocal agreement can ensure a smooth transition in service provision and funding allocation between the city and the county.”
Rep. Randy Bridges, who co-chairs the Interim Joint Committee on Local Government and shepherded legislation that created the annexation task force, asked Mayor Ethington if he would support a requirement that an interlocal agreement be in place before a city annexes property.
“You spoke highly of that [interlocal agreement],” said Bridges.
Despite the positive model established by Shelby County and Shelbyville, Ethington said he doesn’t think interlocal agreements need to be required by statute.
“I don’t know if that’s something we need to mandate. All I like to do is offer, this is what’s working for our community,” Ethington said. “At the end of the day, everyone wins: the city’s growth, the county’s growth, the residents, the community.”
Mayor Alan Keck of Somerset told legislators he also has a good working relationship with his colleagues in county government, and that there is an interlocal agreement in place between Somerset and Pulaski County.
Regardless of whether a county and city have an interlocal agreement or other exception in place, annexation can affect more than just local revenue.
Johnson County Judge/Executive Mark McKenzie explained to the task force what happened when the city of Paintsville authorized a corridor annexation along US 23 in the 1990s. An economic development project on the annexed tract never materialized, but the expanded city boundary opened the door for a gas station along the highway to be annexed for the purposes of selling alcohol.
“This particular annexation was actually proposed when I served on [Paintsville] city council,” McKenzie said. “I did not support the action then, because I did not feel that it met the intent of annexation with it being so far outside of the city proper, only being connected by highway right of way for the purpose of being able to annex this one particular property.”
The annexation proposal came up for vote again in 2021 and was approved despite opposition from nearby residents who are outside city limits.
“This annexation action has changed the dynamic of that community. Those residents expressed their concern as best they possibly could, but because of the way the laws are currently structured, it was not left up to them as property owners or residents to help make that decision,” McKenzie said.
Click here to watch a recording of the Aug. 25 meeting. The next meeting of the annexation task force is scheduled for Friday, Sept. 29.
