For those of you who live in McCracken County, Kentucky, you probably know we are dealing with a bit of a financial situation. It is not yet a crisis, but it will be a crisis if there is no change in the numbers. I thought it might be helpful to some if I shared a few of my thoughts. As you read this, if you have any comments or suggestions, I am in “listening mode.”
1. Kentucky counties are generally funded by an assortment of three (3) different revenue sources:
a. Property Tax
b. Occupational/Wage Tax (1% county cap on this tax)
c. Tax on Insurance Premiums
2. Most of the counties in Kentucky which compare closely to our population are funded by a portion of all three (3) of the above revenue sources. McCracken County has historically been able to avoid using all three (3) sources because the Uranium Enrichment Plant has always been a heavy employer located in the county and not in the City of Paducah. Obviously, that employment is reducing and will continue to decline for the next generations.
3. Kentucky cities are generally funded by the same three (3) revenue sources. However cities are not capped at the one percent (1%) occupational/wage tax. Consequently, there is a “built in” incentive for cities to annex areas of their county which generate employment. (Now you know why the City of Paducah has strange boundary lines). McCracken County and the City of Paducah have some revenue sharing agreements on the Information Age Park and the I-24 Park, but those agreements are set to expire in the next couple of years.
4. Since 2011, McCracken County has been “deficit spending.” The low month of McCracken County’s financial cycle is October. In other words, McCracken County will have the least amount of money in October of any calendar month.
a. In October of 2011, the McCracken County reserve fund had a balance of $5,479,927.00.
b. In October of 2018, the McCracken County reserve fund had a balance of $767,738.00.
c. In October of 2019, the McCracken County reserve fund had a balance of $1,182,133.00
The reserve balance went up approximately $400,000.00 between 2018 and 2019 because we just quit spending money. We deferred $500,000.00 in road maintenance. We did not write checks to some worthy non-profit organizations. In other words, the problem has not necessarily hit bottom; rather, we just quit writing checks.
5. Last month, McCracken County’s “bond rating” (i.e. credit score) was lowered because our reserve fund is inadequate as it compares to our operating budget.
6. So what has caused this situation?
a. Past Loans Without New Revenue
Between 2011 and 2013, McCracken County borrowed $16.5 million dollars for several projects such as the local Murray State Campus, Genova Project, TeleTech Project, and White Hall Project. Some of those projects have worked out great. Some of those projects need more time in the oven. Either way, the debt service payments went up, but the revenue was not adjusted.
b. Cost of the County Jail
Additionally, McCracken County continues to lose money in the operation of its jail. McCracken County operates a 600 bed regional detention center. Contrary to urban legend, the regional detention center does not make money for the county. Quite the opposite. Over the last ten (10) years, the operation of the jail has cost the county between two (2) million and three (3) million dollars every year. There are years in which the jail brings in revenue in the amount of five (5) million dollars. However, in the same year we may spend as much as eight (8) million dollars. It is my personal belief that the jail costs can be lowered with more communication and more illumination to the “incarceration scenarios” which can and cannot be passed on to the Commonwealth of Kentucky for reimbursement. However, that is a long-term culture adjustment we must make and will not solve an immediate problem.
c. Cost of the County Pensions
McCracken County is a designated organization of the Commonwealth of Kentucky. The Commonwealth of Kentucky has designated that our employees will participate in a state pension fund. For years, The Commonwealth of Kentucky failed to adequately fund the pension system. In response to the significant underfunded liability, the Commonwealth of Kentucky has insisted that counties pay additional amounts toward the retirement system. In 2011, McCracken County’s retirement costs were $1,798,367.78. In 2019, McCracken County’s retirement costs were $2,268,409.20. Since 2011, these costs have risen $470,041.42. These costs are projected to continue to go higher.
d. Cost of Health Insurance Benefits
In 2011, the cost of health insurance benefits for McCracken County employees was $1,782,320.73. In 2019, the cost of health insurance benefits for McCracken County employees was $2,401,283.02. Since 2011, these cost have risen $618,962.29.
e. A Very Low Property Tax
McCracken County has one of the lowest property tax rates in the state. In fact, prior to 2019, McCracken County had not raised its property tax rate since 1990 (three (3) decades ago.) Furthermore, the state managed Property Valuation Office (PVA) did not keep assessments current and, in some cases, omitted properties from the tax rolls.
f. The Absence of 9-1-1 “User Free” Funding
In the last three (3) decades, the sophistication and costs of an adequate 9-1-1 Emergency System has dramatically changed. No longer does our community need an “Andy Griffith type” telephone operator helping manage the location of “Barney Fife” but rather our community needs a “Jack Bauer type” emergency service coordinator. Many communities have moved 9-1-1 services to an independent organization with independent “user fee type” funding sources. Neither our City nor County have accomplished this task. We are still attempting to fund perhaps the most critical government service we provide through our general funds.
7. By law, property tax revenue can only be increased by four percent (4%) per year without public approval (an election.) An additional four percent (4%) in property tax for McCracken County only generates an additional $180,000.00 per year for the McCracken County Fiscal Court. Incidentally, most of your county tax bill does not go to McCracken County Fiscal Court for government operations, but rather goes to schools, the library, and special districts such as volunteer fire departments.
Conclusion for Today
I realize this collection of thoughts is a bit random but I want the citizens of McCracken County to have relevant information sooner than later on this matter. I am interested in your thoughts. The easy answer is to say spend less. I am certain there are additional adjustments we can and will make on spending. However we have been deficit spending at the rate of a million dollars a year. More Later.