Kentucky’s Property Valuation Administrators (PVAs) told a House Budget Review Subcommittee yesterday that the governor’s budget contains cuts of 23.5 percent to PVAs that would require layoffs of approximately 40 percent of PVA staff statewide (250 of the current 593.5 state funded employees). They also testified that the cuts would severely compromise their ability to do their jobs and generate more property tax revenue for the state and local taxing districts.
Who Are PVAs and What Role Do They Play?
Each county in Kentucky has a publicly elected Property Valuation Administrator whose duty it is to assess tangible and real property in his or her county. Assessments made by the PVA are used by the state, counties, cities, school districts and special taxing districts, with all users establishing tax rates each year based on the assessed value of property as determined by the PVA. Assessments established by the PVA also serve as the basis for SEEK, the state education funding formula that determines how much money school districts receive from the state and how much local districts are required to raise. As such, PVAs perform an essential function in the administration and collection of property taxes, and compromising their ability to perform this vital function will have broad, damaging ramifications at all levels of government statewide.
How are PVAs Funded?
Funding for PVA offices comes primarily from the state, which is supposed to pay all personnel costs. PVAs also collect around $10.5 million annually from fees for use of the tax rolls that they dedicate to operating expenses. Counties provide office space and some furniture for PVAs.
State funding for PVA offices has been declining for several years and many PVA offices are already staffed at very modest levels. Although PVAs and their workers are state employees, PVAs have been required to send more and more of their locally generated revenues to the state to supplement the insufficient appropriation of state dollars for salaries. That level is currently at about 70 percent of all local revenues, according to testimony presented to the subcommittee. Being forced to send so much of their resources to the state has compromised the ability of PVAs to invest in technology and other operational needs that would allow them to operate more efficiently and effectively.
The PVAs were also faced with potential cuts during the 2016-2018 budget session, which we wrote about at the time, and they took a 5.1% cut in December 2017. Because that cut came half way through the year, it will be difficult to address given that 99 percent of their expenses relate to staff. The PVAs have already instituted cost savings measures to deal with years of inadequate funding, such as delaying new hires for 90 days after a position becomes vacant, and cutting 43.5 positions statewide through planned attrition.
How Will Cuts to the PVA Budget Impact Public Services?
The Kentucky Constitution requires all property be assessed annually at fair cash value, and it is the duty of the PVAs to perform these assessments. PVAs must identify and assess new property each year as well. In addition, because fair cash value changes over time, reassessments must also be done to fulfill this constitutional mandate. The staffing cuts that will be required if the governor’s budget proposal is adopted will make it virtually impossible for PVAs to fulfill these duties.
PVAs generate revenue for the commonwealth and for local districts by ensuring the tax base is properly valued. According to testimony provided by the PVAs, last year, new and reassessed properties generated an additional $62 million for the state, school districts and other local taxing districts. With such dramatic staffing cuts, PVAs would not be able to do the fieldwork necessary to raise these new revenues. Local entities could be forced to raise tax rates because the normal growth in the assessment base will not happen if new properties are not added and existing properties are not reassessed. Because some PVA offices will have less than two staff people, office hours will likely be limited and choices will have to be made about staffing the office or doing crucial fieldwork.
The PVAs testified that they produce $11 in state tax revenues for every $1 the state spends. The return on investment is $56 for every $1 spent including state and local revenues. The PVAs also testified that last year, property taxes generated $17 million more than projections. Given the important role that PVAs play in the property tax system, and that their work generates more revenues for the state and local taxing districts annually than it costs to provide adequate funding for their offices, it is especially shortsighted to cut their budget in such a dramatic fashion.
Solutions Proposed by the PVAs
In addition to asking that cuts not be included in the budget, the PVAs proposed several revenue options to the subcommittee to generate the resources needed to fund their offices, including:
- Adding an additional 2.6 cents per hundred dollars to the state rate that currently sits at 12.2 cents per hundred, with the new revenues devoted to funding the PVA offices (the only proposed option that will come close to raising enough revenue to provide adequate funding);
- Attaching an administrative fee to tax bills;
- Requiring cities and counties to pay more for the use of tax rolls; and
- Assessing taxing districts that currently do not pay for the use of the tax rolls.