What is city annexation?

Annexation is the process of extending a city boundary. KRS 81A.400-81A.530 are Kentucky’s annexation statutes.

How can city annexation harm county revenue streams?

With certain taxes and fees, county revenue may be offset/reduced by city revenue of the same type within the city limits. This is known as crediting.

Insurance premium tax: In ALL counties with an insurance premium tax, when city governments that also levy this tax annex property, the city immediately takes away insurance premium tax revenue from the county.

Occupational license fee: If your county has a population of more than 30,000 and an occupational license fee, that tax rate is capped at 1% and must be credited against the city rate. Note: This crediting of occupational license fees does not apply to counties under 30,000 population or to counties grandfathered in under KRS 68.197 – Boone, Boyle, Campbell, Clark, Jessamine, Kenton, Marshall, Nelson and Scott.

City annexation has not negatively affected my county budget and I get along well with the mayor. Should I still be concerned?

Some counties do not currently impose an insurance premium tax or occupational license fee but may need to in the future due to increasing costs and/or changes to other revenue streams. Annexation can harm your county’s ability to generate revenue necessary for county-wide services.

Additionally, several cities have implemented haphazard annexation without input from counties or a long-term plan in place for managing that growth and maintaining infrastructure. Shoestring annexations can create holes within city boundaries – the Swiss cheese effect. This leads to confusion for residents, businesses, service providers and local agencies about who is responsible for what.

What is KACo’s position on city annexation?

KACo supports a balanced approach to annexation that allows counties and cities to work together toward responsible growth that fuels housing and economic development. County revenue is necessary to provide services to all residents, businesses and employees within the county; that includes both inside and outside city limits. Long-term policy solutions must ensure that counties are not unfairly harmed by annexation and have a voice in the annexation process.

What does Senate Bill 141 do?

SB 141 places a temporary pause on annexations until July 1, 2024, with some exceptions. Annexation can still occur under the following circumstances: 

• Annexations initiated before March 1, 2023 (must have had at least a first reading of local ordinance)
• To allow for substantial economic development projects
• To directly facilitate new or substantially improved services that would not be possible without annexation or to prevent the loss of services
• Requests by a property owner to annex land that is contiguous to existing city boundaries
• Annexations in which the county and city are in agreement
• To continue established interlocal agreements involving an occupational license fee or insurance premium tax

SB 141 also calls for a legislative task force to study the potential beneficial and harmful effects of annexation and make recommendations to the legislature by Nov. 1, 2023. This bill does not apply to Jefferson or Fayette counties.

What should I do if a city has initiated or completed an annexation that I believe is not in compliance with SB 141? 

SB 141 requires cities to notify the county judge/executive in writing of completed annexations. Annexations that you believe do not meet one of the necessities or exceptions outlined in SB 141 can be contested by the county government in the local Circuit Court. Counties must initiate this complaint within 45 days of publication of the final annexation ordinance. 

What should I do if my county and city agree to an annexation proposal? 

If your county supports a city annexation, KACo recommends the fiscal court pass a detailed resolution noting the specific parcels to be annexed which indicates concurrence with the city proposal. 

When can a property owner request annexation and what conditions need to be met for it to proceed within the next year? 

SB 141 does not prohibit a property owner from requesting that their property be annexed into the city. This property must be contiguous to (adjacent to/bordering) the existing city boundary. The city must provide written notice to the county fiscal court at least 45 days prior to enacting a final ordinance annexing the property. 

Who will be on the SB 141 task force? 

The Legislative Research Commission will establish a task force on local government annexation. Members will include four members of the Kentucky Senate appointed by the President of the Senate and four members of the House appointed by the Speaker of the House. 

The task force will meet at least monthly and submit any findings or recommendations by Nov. 1, 2023. 

What can I do to support this issue? 

KACo is currently compiling data and stories related to annexation for all 120 counties, and we want to hear from you! 

Please contact the KACo government affairs team, Shellie Hampton (shellie.hampton@kaco.org) or Gracie Kelly (gracie.kelly@kaco.org), if you have questions or ideas that could be beneficial to the task force.

For questions about annexation that may be occurring in your county, please contact your county attorney or KACo legal staff.