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Kentucky League of Cities urges modernizing local revenue rules; flags threats to municipal finance
Summary
Kentucky League of Cities CEO JD Cheney briefed the Lexington council on the 2025 legislative agenda, stressing the need to modernize road funding and local revenue options and warning of several statewide and federal fiscal threats to city budgets.
JD Cheney, CEO of the Kentucky League of Cities, told the Lexington Fayette Urban County Council at its Jan. 21, 2025, work session that the League’s short legislative session priorities include modernizing the state road‑funding formula, clarifying which cities may impose a restaurant tax and protecting local governments from mandated state collection of local taxes.
Cheney told council members the municipal share of state road funding is skewed toward county and unincorporated-area allocations and that modernizing the formula would better align state distributions with city street maintenance demands. “Municipal road aid is heavily tilted toward counties,” Cheney said, describing Lexington’s position as a merged government that receives both municipal and county allocations but still faces inequities in the formula.
Why it matters: Cheney said the League seeks statutory and constitutional fixes that would give cities more stable, equitable revenue and preserve home-rule decision making. Council members pressed for more detail on the prospects of a constitutional amendment to expand the city revenue toolbox, and Cheney explained the amendment would need three-fifths approval in both chambers and then voter approval statewide.
Key points from the update
- Road funding and municipal aid: Cheney said the League is seeking to “modernize the road funding formula” so municipal governments receive a fairer share of state sales- or gas-tax–derived aid for local street maintenance instead of relying heavily on local general funds.
- Restaurant tax litigation and constitutional constraints: The League is monitoring a Court of Appeals case brought by the city of Hazard that challenges historical distinctions among cities under Kentucky’s constitution. Cheney said the League’s board supports clarifying the law so cities of all sizes could choose to impose a restaurant tax for tourism-related projects, but he said pending litigation reduces the likelihood the legislature will act immediately.
- Constitutional amendment prospects and occupational tax tradeoffs: Cheney described long-running League efforts to update provisions he cited as coming from Kentucky Constitution Section 18/91 and warned that proposals tied to surrendering occupational taxes would be difficult for cities like Lexington, which rely heavily on occupational-tax revenue.
- Defending local collection and municipal finance: Cheney told council members the League is campaigning to oppose proposals that would require the state or a third party to collect local taxes — a change the League says would threaten local autonomy and could destabilize municipal finance.
- Federal-level concern: Cheney flagged a separate federal policy discussion about removing the tax-exempt status of municipal bonds, which, if enacted, could significantly affect cities’ capacity to sell debt affordably.
Next steps and council response
Council members asked for follow-up materials and a post-session wrap-up. Cheney said League staff will provide the full legislative agenda and suggested the League could return after the session for a wrap-up presentation. Cheney also offered multiple contact points (gkelley@klc.org and jd@klc.org) for staff and council to follow up on specific bills.
