The basic provisions of House Bill 44 for local governments and school districts provide three options:
- adoption of a compensating rate;
- adoption of a 4% increase tax rate; or
- adoption of a rate that will produce more than 4% additional revenue.
The compensating tax rate allows a taxing district, as a minimum, the same tax revenue that was produced in the preceding year. As assessments rise, the tax rate is rolled back so that revenue from existing property remains the same. A taxing district would receive additional revenue over the previous year only from assessments on any new property. This rate can be adopted automatically by the taxing district.
The 4% increase tax rate would enable a taxing district to increase its revenues by establishing a new tax rate which, when applied to real property that was taxed the preceding year, will produce no more than 4% additional revenue from that property. The jurisdiction would also gain the revenue generated from new property assessments. This tax rate requires a public hearing before it can be put into effect.
A taxing district may levy a rate that will produce more than 4% additional revenue from real property taxed the preceding year. However, before this type of rate can be set, a public hearing must be held and the voters can petition that the increase above 4% be put to a recall vote.
The following sections will discuss each type of tax rate calculation in detail.
Under House Bill 44, the compensating tax rate is defined as that rate, when applied to the current year's assessment of real property, excluding new property, will produce an amount of revenue approximately equal as that produced last year from real property. Therefore, as real property assessments rise, the tax rate is rolled back to keep the revenue generated from the existing real property assessments about the same.
Since the compensating rate is calculated by using only the total real property assessment, House Bill 44 includes what is known as a "hold harmless" clause. This clause states that if the compensating rate - when applied to the current year's total assessment - would produce less revenue than last year's actual real and personal property tax rates, then the compensating rate can be adjusted upward. The following example provides a basic illustration of a compensating tax rate calculation.
|Compensating Tax Rate Calculation, given that:
|2019 Total Taxable Assessment
|2019 Total Real Property Assessment
|2019 Tax Rate - Real Property
|27.8¢ per $100
|2019 Revenue Potential - Real Property
|2019 Tax Rate - Personal Property
|30¢ per $100
|2020 Total Taxable Assessment
|2020 Total Real Property Assessment
|2020 Net New Property
In this example, real property assessments have increased by $4 million, but $2 million of that increase is due to new property constructed during the year. That amount gets excluded from the compensating tax rate calculation so that an adjustment is made for only the reassessments that were completed during the year. This adjustment is shown below:
|2020 Total Real Property Assessment
|2020 New Property Assessment
|2020 Existing Real Property Assessment
|2019 Real Property Revenue Potential
|2020 Existing Real Property Assessment
2020 Compensating Tax Rate
(Round up to 26.8¢ per $100)
This calculation indicates that the taxing district needs to reduce its tax rate from 27.8 cents per $100 of assessed valuation that was levied in 2019 to 26.8 cents in 2020 in order to keep revenues generated from properties that existed in both 2019 and 2020 about the same. The district would get additional revenues from the $2 million in new property assessments.
Note that typical math rounding rules are ignored in this calculation. By statute, the compensating tax rate is always rounded up to the next tenth of one cent.
After this initial calculation is completed, the "hold harmless" check calculation is done. This computation verifies that the compensating rate that was just calculated has the potential to bring in at least the same amount of revenues as last year's actual real and tangible property tax rates. The following example demonstrates this process:
|2020 Total Taxable Assessment
|2020 Compensating Rate
|Total Potential Revenue - 2020
Since the compensating rate has the potential to produce more income than last year's actual tax rates, the compensating rate is valid.
|2019 Real Property Assessment
|2019 Real Property Rate
|2019 Revenue from Real Property
|2019 Personal Property Assessment
|2019 Personal Property Tax Rate
|2019 Revenue from Personal Property
|Total Revenue from Last Year
KRS 68.245 provides that a local taxing district also has the option of setting a " tax rate which will provide no more revenue from real property, exclusive of revenue from new property, than 4% over the amount of revenue produced by the compensating tax rate." In other words, this rate will produce revenue from the current year's assessment, less the new property assessment, that is 4% greater than the preceding year's revenue.
In the sample calculation provided earlier, the compensating rate was found to be 26.8¢ per $100 of assessed valuation. The 4% increase rate would be calculated as follows:
|2020 Compensating Rate:
| .00268 (26.8 per $100)
| x 1.04
|2020 4% Increase Rate:
| .002787 (Round down to 27.8¢ per $100)
Note that the 4% increase rate is always rounded down to the next one tenth of a cent. If it was rounded up, then the district would receive more than a 4% increase in revenue.
Any taxing district proposing to levy a tax rate which exceeds the compensating tax rate, must hold a public hearing to obtain comments from the public regarding the proposed tax rate. The hearing should be held in the principal office of the district, or if the district's principal office is inadequate for such a meeting, the meeting should be held in a suitable facility as near as possible to the geographic center of the district.
A taxing district in a county that contains a first class city must have three (3) public hearings regarding the proposed tax rate. The hearings must be held in three separate locations which are determined by dividing the county into three geographic areas roughly the same in area. Each hearings must be held in a facility that is as near as possible to the geographic center of the areas.
In addition to the requirements for the meeting, the public hearing must be advertised in accordance with the following specifications:
The taxing district shall advertise the hearing at least twice in two consecutive weeks in the newspaper of largest circulation.
The newspaper advertisement shall not be less than twelve column inches and shall contain the following information:
- The tax rate levied and revenue produced by that rate in the preceding year;
- The tax rate proposed for the current year and revenue expected from it;
- The compensating tax rate and revenue expected from it;
- Revenue expected from new property and personal property;
- General areas to which revenue in excess of the revenue produced in the preceding year is to be allocated;
- The time and place for the public hearing(s) which shall be held not less than seven nor more than ten days after the second advertisement is published;
- The purpose of the hearing(s); and
- A statement that the general assembly has required publication of the advertisement and information therein.
Instead of publishing a notice of the hearing in the paper for two consecutive weeks, a taxing district may send a single notice, by first class mail, to each person owning real property as shown on the current year's tax roll.
If a taxing district levies a tax rate which will produce revenue from real property, exclusive of revenue from new property, that is more than 4% over the amount of revenue produced by the compensating tax rate, the portion which exceeds the 4% is subject to a recall vote or reconsideration by the taxing district. The procedures involved in establishing this type of tax rate are governed by KRS 132.017. A summary of those procedures is detailed below:
That portion of a tax rate levied by an ordinance, order, resolution, or motion of a local governmental entity or district board of education subject to recall as provided for in KRS 68.245, 132.023, 132.027, and 160.470, shall go into effect forty-five (45) days after its passage.
During the forty-five (45) days next following the passage of the ordinance, order, resolution, or motion, any five (5) qualified voters who reside in the area where the tax levy will be imposed may commence petition proceedings to protest the passage of the ordinance, order, resolution, or motion by filing with the county clerk an affidavit stating that they constitute the petition committee and that they will be responsible for circulating the petition and filing it in the proper form within forty-five (45) days from the passage of the ordinance, order, resolution, or motion. The affidavit shall state their names and addresses and specify the address to which all notices to the committee are to be sent. Upon receipt of the affidavit, the county clerk shall:
- At the time of filing of the affidavit, notify the petition committee of all statutory requirements for the filing of a valid petition under this section;
- At the time of the filing of the affidavit, notify the petition committee that the clerk will publish a notice identifying the tax levy being challenged and providing the names and addresses of the petition committee in a newspaper of general circulation within the county, if such publication exists, if the petition committee remits an amount equal to the cost of publishing the notice determined in accordance with the provisions of KRS 424.160 at the time of the filing of the affidavit. If the petition committee elects to have the notice published, the clerk shall publish the notice within five (5) days of receipt of the affidavit; and
- Deliver a copy of the affidavit to the appropriate local governmental entity or district board of education.
The petition shall be filed with the county clerk within forty-five (45) days of the passage of the ordinance, order, resolution, or motion. All papers of the petition shall be uniform in size and style and shall be assembled in one (1) instrument for filing. For a district board of education or other taxing district that is primarily located in a county containing an urban-county government or a consolidated local government, each sheet of the petition may contain the names of voters from more than one (1) voting precinct. For a district board of education or other taxing district that is not primarily located in a county containing an urban-county government or a consolidated local government, each sheet of the petition shall contain the names of voters from one (1) voting precinct only. The inclusion of an invalid signature on a page shall not invalidate the entire page of the petition, but shall instead result in the invalid signature being stricken and not counted. Each signature shall be executed in ink or indelible pencil and shall be followed by the printed name, street address, and Social Security number or birthdate, and the name and number of the designated voting precinct of the person signing. The petition shall be signed by a number of registered and qualified voters residing in the affected jurisdiction equal to at least ten percent (10%) of the total number of votes cast in the last preceding presidential election.
Upon the filing of the petition with the county clerk, the ordinance, order, resolution, or motion shall be suspended from going into effect until after the election (see paragraph 10) is held, or until the petition is finally determined to be insufficient and no further action may be taken (see paragraph 8).
The county clerk shall immediately notify the presiding officer of the appropriate local governmental entity or district board of education that the petition has been received and shall, within thirty (30) days of the receipt of the petition, make a determination of whether the petition contains enough signatures of qualified voters to place the ordinance, order, resolution, or motion before the voters.
If the county clerk finds the petition to be sufficient, the clerk shall certify to the petition committee and the local government entity or district board of education within the thirty (30) day period provided for in paragraph 5 that the petition is properly presented and in compliance with the provisions of this section, and that the ordinance, order, resolution, or motion levying the tax will be placed before the voters for approval.
If the county clerk finds the petition to be insufficient, the clerk shall, within the thirty day (30) period provided for in paragraph 5, notify, in writing, the petition committee and the local governmental entity or district board of education of the specific deficiencies found. Notification shall be sent by certified mail and shall be published at least one (1) time in a newspaper of general circulation within the county containing the local governmental entity or district board of education levying the tax or, if there is no such newspaper, shall be posted at the courthouse door.
A final determination of the sufficiency of a petition shall be subject to final review by the Circuit Court of the county in which the local governmental entity or district board of education is located, and shall be limited to the validity of the county clerk's determination. Any petition challenging the county clerk's final determination shall be filed within ten (10) days of the issuance of the clerk's final determination.
The local government entity or district board of education may cause the cancellation of the election by reconsidering the ordinance, order, resolution, or motion amending the ordinance, order, resolution, or motion to levy a tax rate which will produce no more revenue from real property, exclusive of revenue from new property as defined in KRS 132.010, than four percent (4%) over the amount of revenue produced by the compensating tax rate defined in KRS 132.010 from real property. The action by the local government entity or district board of education shall be valid only if taken within fifteen (15) days following the date the clerk finds the petition to be sufficient.
If an election is necessary the county fiscal court, legislative body of a city, urban-county government, consolidated local government, or other taxing district shall cause to be submitted to the voters of the county, district, consolidated local government, or urban-county at the next regular election, the question as to whether the property tax rate shall be levied. The question shall be submitted to the county clerk not later than the second Tuesday in August preceding the regular election.
If an election is necessary for a school district, the district board of education may cause to be submitted to the voters of the district in a called common school election not less than thirty-five (35) days nor more than forty-five (45) days from the date the signatures on the petition are validated by the county clerk, or at the next regular election, at the option of the district board of education, the question as to whether the property tax rate shall be levied. If the election is held in conjunction with a regular election, the question shall be submitted to the county clerk not later than the second Tuesday in August preceding the regular election. The cost of a called common school election shall be borne by the school district holding the election. Any called common school election shall comply with the provisions of KRS 118.025.
In an election, the question shall be so framed that the voter may by his or her vote answer "for" or "against." If a majority of the votes cast upon the question oppose its passage, the ordinance, order, resolution, or motion shall not go into effect. If a majority of the votes cast upon the question favor its passage, the ordinance, order, resolution, or motion shall become effective.
If the ordinance, order, resolution, or motion fails to pass pursuant to an election held, the property tax rate which will produce four percent (4%) more revenues from real property, exclusive of revenue from new property as defined in KRS 132.010, than the amount of revenue produced by the compensating tax rate defined in KRS 132.010, shall be levied without further approval by the local governmental entity or district board of education.
Notwithstanding any statutory provision to the contrary, if a local governmental entity or district board of education has not established a final tax rate as of September 15, due to the recall provisions of this section, KRS 68.245, 132.027, or 160.470, regular tax bills shall be prepared as required in KRS 133.220 for all districts having a tax rate established by that date; and a second set of bills shall be prepared and collected in the regular manner, according to the provisions of KRS Chapter 132, upon establishment of final tax rates by the remaining districts.
If a second billing is necessary, the collection period shall be extended to conform with the second billing date.
All costs associated with the second billing shall be paid by the taxing district or districts requiring the second billing.