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LOUISVILLE, Ky. (WDRB) – Money generated by a Louisville Metro tax on insurance premiums can be earmarked for the city's affordable housing trust fund, Attorney General Jack Conway’s office has determined in a reversal of a prior review.
While not a formal opinion, Conway’s interpretation could pave the way for some Metro Council members to make a second attempt at raising the city’s tax on insurance premiums to generate revenue for the affordable housing fund.
A similar proposal died last year when Jefferson County Attorney Mike O'Connell's office said money from the insurance tax couldn't be permanently dedicated to the housing trust. Instead, the money would have to go into the city's general fund and then be appropriated by the Metro Council each year.
Conway's office initially agreed with O'Connell's interpretation,but a May 30 letter written by assistant attorney general Matt James reached a different conclusion after reviewing a section of state law that wasn’t previously considered.
That part of the law treats the Louisville-Jefferson County merged government as a “separate classification” that retains some powers of a conventional county government – such as the ability to specify the purpose for a tax.
“In summary, we advise that a consolidated local government may dedicate the proceeds of an insurance premiums tax to any valid public purpose, including an affordable housing trust, as long as that purpose is specified in the ordinance levying the tax,” James wrote.
Metro Council member Attica Scott said a work group of council members exploring options for funding the housing trust plans to recommend increasing the insurance tax as its preferred way of meeting a goal of $10 million in dedicated revenue. The plan will be circulated later this month, she said.
“That’s our number one recommendation,” said Scott, a Democrat. “That’s what we prefer to do.”
Scott acknowledged that the council isn’t far removed from a contentions debate over fee increases for Louisville Gas & Electric natural gas customers, but she said she welcomes an “honest conversation and healthy debate” in the months to come.
But council member Kelly Downard said any increase in insurance taxes is “a bad idea” and he questioned whether the council would support it. In previous debates, “a whole lot more people were against it than for it,” he said.
Downard, a Republican, said he was not aware of Conway’s advisory letter. But he said he's concerned about the unintended consequences of allowing the tax to be earmarked.
“A direct allocation of the tax? The whole world is going to want a piece of that,” he said.
Also under consideration by the work group, which Scott said includes fellow council members Madonna Flood and Mary Woolridge, are revenues from foreclosures and a “developer impact fee.” Additional analysis is needed to determine how much money those options would generate, Scott said.
Kentucky state Rep. Joni Jenkins, a Louisville Democrat, had asked Conway’s office to revisit its prior interpretation about whether insurance tax money can be dedicated.
Established by the Metro Council in 2008, the housing trust fund has struggled to find consistent revenue for new housing units, renovations and other projects for low-income households. Developers and other organizations may apply for funds controlled by the housing trust.
The housing trust, which is overseen by a mayor-appointed board, must set aside at least half of its public money for households at or below the median income of the Louisville area, or $19,814 for a single person, according to the trust fund.
A 2006 task force formed by then-Mayor Jerry Abramson recommended creating the fund, and a year later Abramson committed $1 million in start-up money.
The housing trust fund has begun some projects with one-time federal grant money, private donations and the initial Metro Louisville contribution, but executive director Rachel Hurst said the fund still lacks “a source of dedicated public revenue.”
“Until we have that, we are not really a true housing trust fund,” she said.
A group of Metro Council Democrats introduced an ordinance last year that would have increased the tax on premiums for auto, health, homeowner’s and other insurance policies to 6 percent, up from 5 percent, for residents living inside the old City of Louisville limits.
But because of limitations in the 2003 merger of Louisville and Jefferson County governments, the tax increase would affect other residents differently.
According to the Jefferson County Attorney Mike O’Connell’s office at the time, those living in unincorporated parts of the county would pay the higher tax on all policies but health care, but residents of small cities would avoid the tax increase altogether.
But that may no longer be the case, according to a February letter from O’Connell’s office to Scott and obtained by WDRB.com. In that letter, attorney Bill O’Brien writes that if a license fee or tax is imposed countywide, residents of incorporated cities paying less than the proposed rate would be bound to pay the difference between their city rate and the county rate.
The letter doesn’t say who would collect the difference or provide other details