March 5, 2014

Publisher's Notebook: Restaurant tax may be hijacked

LAUREL COUNTY, Ky. — The City of London certainly will need more money if it ever hopes to build a water park, a convention center and walking trails. These items have been forwarded as reasons to pass a three percent restaurant tax in the city.

The tax has already been recommended by the new London Tourism and Convention Commission, and was scheduled to be acted upon at the city council meeting at noon today (Wednesday). It has the support of Mayor Troy Rudder and several council members and was likely to pass first reading.

If approved, the three percent restaurant tax would deliver a huge amount of money to the city’s new tourism commission, at least $2 million a year based on current restaurant sales. That would be enough guaranteed funding to float bonds or take out loans to finish the wellness park, to build walking and biking trails and to fund other needed projects in the city.

If only there was a guarantee the tax money will be used solely for those purposes.

Current state law requires 100 percent of restaurant tax money to be administered by tourism commissions and to be used only for tourism-related projects.

But the Kentucky League of Cities is pushing a legislative initiative in Frankfort to give city officials, not tourism commissions, greater control over that lump of cash. KLC, where Mayor Rudder serves as a board member, wants to give 25 percent of the restaurant tax to tourism, and use the remaining 75 percent for “quality of life enhancements,” which can mean anything from police and fire protection to recycling.

Proponents of the restaurant tax can talk about the great enhancements London will get with this new money. But yet the bulk of it may wind up just funding existing services if the KLC initiative is successful.

Kind of dampens the enthusiasm for paying the tax, doesn’t it?

The KLC is coordinating efforts to maximize and control dwindling revenue streams. First, cities like Somerset and London form their own tourism commissions so they don’t have to share any of the restaurant tax with city-county tourism commissions. Now, they push a plan to bypass their own tourism commissions to use the bulk of the money as they wish.

“To better address financial demands and to respond to the changing economy, local officials need more diversified revenue options…,” the KLC said in a statement about the legislative initiative. “We want to let local officials, not appointed officials, control how the majority of the revenues are spent.”

So, cities that have over extended themselves, put too many people on the payroll, built too many nice buildings and otherwise failed to live within their means are now looking to hijack new tax revenue that had been used for a distinct purpose.

It won’t be the first time elected officials have been guilty of hijacking. The state lottery was passed in 1998, with a lot of controversy, primarily because lawmakers said 100 percent of the proceeds would be used for education. Proponents said the lottery would do great things for student financial aid programs.

But since 2009, state lawmakers have diverted more than $100 million in lottery proceeds away from education, and dumped in it in the general fund. The proposed two-year budget might take away another $76 million.

The state can’t balance the budget without hijacking money from students and school districts. In effect, the lottery was passed on a lie.

There are good reasons for London to pass the restaurant tax. Many local cities already have it and a big chunk of it will be paid by people who are passing through town.

But despite assertions to the contrary, there’s a distinct possibility the bulk of the restaurant tax proceeds eventually will be hijacked and taxpayers won’t see the full benefit.

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