Florence staff outlines revenue impact of cutting insurance premium tax from 5% to 4%
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Summary
City finance staff told council that cutting the insurance premium tax from 5% to 4% would reduce revenue by roughly $1 million a year (about $5 million over five years) but would not immediately create a general-fund imbalance; councilors pressed for resident-vs-business breakdowns and noted statutory timelines for ordinance changes.
Jason Lewis presented six years of actual insurance-premium-tax collections and the current fiscal-year budget, noting that the city has historically collected more than budgeted for this line item. He said the city budgeted $4,000,000 for FY26 but was on track to collect approximately $5,000,000.
Lewis and other staff projected that reducing the city's insurance premium tax rate from 5% to 4% (a 20% rate cut) would produce a revenue shortfall of roughly $1,000,000 per year, about $3,000,000 over three years and approximately $5,000,000 over five years. Lewis said that a one-percentage-point reduction to 4% could be absorbed without producing an immediate general-fund operating deficit, but he warned that deeper or multiple revenue cuts could create deficits that require difficult budget choices.
Councilors noted the practical effect: because collections are projected to run about $1,000,000 over the budgeted line this year, cutting the rate by one point would largely return that line to the budgeted amount, and some members argued for building annual review language into any ordinance change to allow council to reassess the rate during the budget process. Staff said an ordinance change must follow statutory requirements (two readings and publication) and practical deadlines tied to the Department of Insurance; staff cited a practical 100-day lead time before July 1 when changes should be completed.
Councilors asked how much of the tax is paid by residents versus businesses; staff said they did not have a ready breakdown and that payments arrive as a lump check from insurers with no itemized documentation in the city's payment files. Staff also noted differences in how various insurance lines are taxed across jurisdictions and that not all cities collect the insurance-premium tax; staff said moving to 4% would likely make Florence among the lowest rates in Northern Kentucky if adopted.
No ordinance vote was taken in the caucus; staff indicated they could draft ordinance language to include annual review provisions if council desired.