***Councilmembers Kathy Plomin, James Brown, and Vice Mayor Dan Wu in the May 28th, 2024 Budget Committee of the Whole Meeting. Source:*** ***LexTV***

In Tuesday’s Council Work Session, Councilmembers will decide how to set the ad valorem tax rates for Fiscal Year 2025.

Ad valorem taxes are property taxes, which are assessed on assets like homes and real estate, machinery, motor vehicles, boats, personal planes, or agricultural products.

Fayette County’s ad valorem taxes are split between multiple entities. Fayette County Public Schools gets the majority of ad valorem taxes (64.1% in FY 2024), while the rest are split between the State (9.1%), LexTran (4.7%), LFUCG’s General Fund (6.3%), LFUCG’s Urban Services Fund (14.1%), and other agencies (2.3%).

Lexington’s Urban County Council can only set rates for the city’s General Fund, Urban Services Fund, Soil and Water Conservation, Extension Office, and Health Department; FCPS and the State of Kentucky set their own ad valorem tax rates.

In this meeting, Council will make two decisions: what tax rates to set for funding the General Fund, and what rates to set for the Urban Services Fund. For the General Fund, Council has the following three options:

Option 1: Keep the rates the same as last year. Keeping the rates the same as last year will generate more revenue, largely due to higher property values.
Option 2: Set a compensating rate that generates roughly the same revenue as last year. This year, this option would lower the rate, bringing in roughly the same amount of money as was generated last year.
Option 3: Set rates that will raise 4% more revenue than last year. Kentucky state law allows cities to generate a maximum of 4% more revenue than the prior year through ad valorem taxes; if a city sets a rate that generates a revenue increase higher than 4%, that rate is subject to a recall vote from Lexington taxpayers.

The Mayor’s Administration is recommending Option 1. A tax bill for a $250,000 house in Lexington would pay $190 toward the General Fund under Option 1.

Council will have four options for the Urban Services Fund tax rates: the three same options for the General Fund, as well as Option 4: Cost of Service. This option would fully fund all of the services provided through the Urban Services Fund.

The Urban Services fund provides money to pay for street lights, waste collection, and street sweeping.
Historically, Council has not set Urban Services Fund rates at a level that fully funds these services. Money is often pulled from the General Fund to fill the gap in service cost.
- A Cost of Service Rate would allow the ad valorem tax to fully fund these services so that Council would not have to take money from the General Fund to fill any budget gaps.

Council will have four options for the Urban Services Fund tax rates: the three same options for the General Fund, as well as Option 4: Cost of Service. This option would fully fund all of the services provided through the Urban Services Fund.

The Urban Services fund provides money to pay for street lights, waste collection, and street sweeping.
Historically, Council has not set Urban Services Fund rates at a level that fully funds these services. Money is often pulled from the General Fund to fill the gap in service cost.
- A Cost of Service Rate would allow the ad valorem tax to fully fund these services so that Council would not have to take money from the General Fund to fill any budget gaps.

Council will vote during Council Work Session on what rates to set. The rates will go up for First Reading in Thursday, August 22nd’s Council Meeting, and will receive a public hearing and a final vote on September 3rd.

You can view the full presentation of the ad valorem tax options starting on page 104 of this packet.

Council Work Session will be held on Tuesday, August 20th at 3pm in Council Chambers. You can attend in-person or watch live on LexTV.