February 20, 2019

What is the procedure for increasing a city's ad valorem (property) tax rate?

It is mandatory that a city levy ad valorem (property) taxes on all property located within the city limits that is not specifically exempt from local taxation by the Kentucky Constitution or statutes.

KRS 132.027 does not allow a city to levy a tax rate that produces more revenue than would be accrued by using the compensating tax rate unless a public hearing is held on the matter. The compensating tax rate limit is designed to prevent cities from levying a real property tax rate that will produce more revenue than the previous year's rate produced (exclusive of revenue from new growth), unless the city follows certain statutory procedures.  If the proposed tax rate exceeds the compensating tax rate, the city must comply with notice and hearing requirements found in KRS 132.027(2).

If the city proposes to levy a tax rate that exceeds the compensating tax rate by more than four percent, KRS 132.027(3)(b) requires the city to publish an advertisement detailing the real property tax increase in the county's largest newspaper. Additionally, the portion of the tax rate that produces revenue more than four percent above the revenue produced in the preceding year is subject to a possible recall vote under the provisions found in KRS 132.017.

The public hearing and recall procedures apply only to the real property tax rate and not the rate applicable to personal property.

For assistance in calculating the compensating tax rate, the city can contact the Department of Local Government at 800-346-5606 or the Kentucky League of Cities at 800-876-4552.

In addition, the City Officials Legal Handbook provides more detail on taxation matters.