Fayette school board: We support plan to seek more tax dollars from county workers
Despite opposition, a split Fayette County school board Tuesday approved a resolution seeking an increase to the occupational license tax rate to help tackle a $16 million budget deficit.
The Fayette County Public Schools board voted 3-2 to ask the Fayette Fiscal Court to increase the occupational license tax rate for schools from 0.5% to 0.75% of wages of individuals and net profits of businesses.
District leaders predict the tax hike would cost about $13 per month for the average Fayette County worker. The tax increase will not impact retirees who are not currently working, and Social Security benefits are not subject to the tax.
Board members Monica Mundy and Amanda Ferguson voted against the resolution. Penny Christian, Amy Green and board chair Tyler Murphy supported it.
'We have to do right by these kids,' Christian said.
Earlier in May, district officials said all department budgets will be reduced by 20% to help address rising costs, but another $16 million must be cut from the general fund budget.
Fayette Deputy Superintendent Houston Barber said at Tuesday's meeting the district needs to maintain investments in the classroom, it has insufficient revenue to cover inflationary increases, and must make long-term investments in the district and for student achievement.
Most of the district's money, he said, covers personnel salaries and benefits.
A balanced tentative budget must be submitted to the Kentucky Department of Education by Friday.
Barber said the district has already cut $8.9 million at the district level. There have been $1 million in reductions in positions at Central Office through attrition. The district has cut non-campus departmental budgets by 20%, implemented tighter travel limitations moving forward, and eliminated non-essential overtime pay.
Barber gave examples of the changes in expenditures from 2019 to 2025. The costs of salaries have increased from $278 million to $389.2 million and employee benefits from $28.1 million to $41.4 million.
Raising new revenue and reducing expenditures are necessary for the proposed tentative $848 million budget for fiscal year 2026, officials said.
The current occupational license tax is expected to bring in $57 million to the district for the next fiscal year. Initially, the increase in January 2026 would be $13 million to $16 million with an estimated $27 million to $32 million annually when fully implemented, Barber said.
He described an occupational license tax as a payroll tax on wages earned in Fayette County. It is paid by employees who live and work in the county. It is not tied to property ownership.
Barber said he was recommending the increase be approved Tuesday in part because a balanced tentative budget is due to the Kentucky Department of Education by Friday.
Under state law, the resolution must be processed by the Fayette fiscal court within 10 days of the board passing the resolution.
'This is the way to do it,' Barber said.
He said the district would continue to monitor expenses and create a task force of stakeholders to make recommendations for additional efficiencies.
The resolution says that present revenue sources will not be sufficient to provide for the building of enough classrooms for thousands of school children, or to furnish adequate school services for all public school children in Fayette County.
Any county with 300,000 residents or more can take the 0.75% occupational tax rate, according to the resolution.
Jefferson County Public Schools receives revenue from an occupational license tax rate of 0.75 %, district spokesperson Mark Hebert confirmed Tuesday morning.
The Fayette school board usually funds schools through property taxes. Unlike the occupational tax, which is overseen by Fayette County Fiscal Court under language from the 1974 merger that formed the Lexington-Fayette Urban County Government, the school board can set property tax rates higher to get more revenue.
However, they can only take 4% more than the year before without it being subject to recall. Thanks to Fayette's continuously growing property assessments, they can often receive a 4% increase without raising the tax rate. Even at the same tax rate, Fayette gets more money.
Board members Monica Mundy and Amanda Ferguson said they did not learn about the proposal to raise the occupational license tax until the Memorial Day weekend.
Mundy said there should be a public hearing and then a special meeting for a vote at a later date so that the public could express their views about the tax increase.
Board chair Tyler Murphy said budget discussions began in January and 'there have been avenues for public engagement.'
Ferguson made a motion to table the vote pending the June school board planning meeting. Mundy voted with Ferguson, but the motion failed when three other board members voted against it.
Superintendent Demetrus Liggins said he did not know the consequences for not submitting the tentative budget in May to the Kentucky Department of Education.
Green, the board's vice chair, said the occupational license tax increase would keep investments in the classroom. She also said she did not think there would be time for a public hearing given that a balanced tentative budget must be sent to the Kentucky Department of Education by the end of May.
The Fayette Public Schools tax collection office would administer and collect the occupational license tax rate, the resolution says.
Fayette County Judge Executive Mary Diane Hanna told the Herald-Leader the occupational tax for schools is currently imposed by the Fayette County Public School district at a rate of one-half of one percent (0.5%). The Fayette County Board of Education can request the Fayette County Fiscal Court to levy a special occupational license tax which can increase by one-quarter of one percent (0.25%), Hanna said.
Hanna said Sunday that the resolution could be on the docket for a special meeting of the fiscal court. It may be too late to get it on the docket for a June 5 meeting. She said Tuesday night in an email that 'I have referred this entire matter to legal counsel who will advise me/us on this issue.'
At an Urban County Council work session Tuesday before the school board vote, Lexington council member Whitney Elliot Baxter asked Lexington Fayette Urban County Government Interim Commissioner of Law David Barberie about the school district's effort to increase the occupational license tax.
'We don't represent the fiscal court, but our reading of the statute would be that their role is merely to rubber stamp it. They don't really have the meaningful opportunity to push back on this,' Barberie said.
Several people in the community spoke for and against the tax increase in front of a packed school board meeting room.
Whit Whitaker, President of the Lexington-Fayette NAACP, was among those who spoke in favor of the resolution.
LFUCG Council member Emma Curtis said she came to city council to speak in favor of collective bargaining, but she also wanted to express her concern with the process around the payroll tax.
'I'm here to encourage good government,' she said. 'I don't think the way the public was made aware of this tax was fully transparent.'
'City Council as a body has worked to increase transparency and public engagement. It's inconceivable that an elected body would go about this process in a way that intentionally cuts the public out of it.'
Michael Hawse is chair of Young Democrats and sits on the board of Fayette Democratic Party who said he came to speak to the resolution they passed in support of collective bargaining.
But speaking as an individual, he said. 'These issues can be difficult, but one thing the board should understand is that the public needs to have all the information.'
Fayette County Public Schools remains in solid financial standing, Barber has said.
Aside from the occupational license tax for schools, Susan Straub, spokesperson for Lexington Mayor Linda Gorton, said Tuesday that the Lexington-Fayette Urban County Government assesses an occupational license fee of 2.25 %.
The fee applies to an individual's compensation and a businesses net profit. The city started collecting that payroll tax in 1980 and it has stayed at 2.25 % since 1992.
It currently generates $276 million, which makes up 55.2 percent of the city's general fund budget, Straub said.
Staff writer Kendall Staton contributed to this article.
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