Kentucky's largest cities of Louisville, Lexington, and Bowling Green are particularly vulnerable to effects brought on by the economic pause related to the coronavirus pandemic. A recent study by The Brookings Institute found that all three were in the top 15 in the United States of cities that will immediately feel the fiscal impacts.

The study considered two critical factors, the share of general fund revenues from elastic sources and share of metro employment in high risk industries.

Tax Structure Issues

As noted by Brookings, "As the crisis unfolds, the impact on cities’ bottom line will be driven not only by overall economic conditions but specifically the parts of the economy where revenue is generated: retail sales, income and wages, and real estate."

This is particularly daunting for Kentucky cities, which are an outlier in their reliance on elastic sources, particularly income and wage taxes. Bowling Green is the third most reliant on elastic sources of the cities studied, with a 71.18% of general fund revenue. Louisville and Lexington are not far behind with 59.85% and 54.76%.

Fewer than 1 in 10 cities in the United States rely on income and wage taxes for a majority of their revenue, according to the study.

Kentucky's over reliance on income and wage taxes has been a long recognized issue brought on by the state's antiquated constitutional restrictions. A constitutional amendment put forward by State Representative Michael Meredith earlier this year would have allowed the General Assembly to create a more balanced structure for local governments but the legislation was unexpectantly blocked when House Democrats, many of which were co-sponsors, refused to vote for the bill.

High Risk Industries

Kentucky's major cities are also made vulnerable by the percentage of their economies made up by high risk industries (mining/oil and gas, transportation, employment services, travel arrangements, and leisure and hospitality). Cities with more than 15% of jobs in these areas are particularly at risk during this period of economic pause.

Among Kentucky cities, Lexington is slightly highest in overall percentage of job in high risk industries with 16.7%. Louisville and Bowling Green are both at 16.5%. A separate study found that for Louisville alone this represents 105,062 jobs, with another 44,933 in Lexington and 12,182 in Bowling Green.

No Plan for Recovery

The pain soon to be felt by Kentucky cities and other local governments is multiplied by last week's unemployment data that showed Kentucky is 8th highest in the United States in unemployment claims per capita in the country and the highest in our region. The negative impacts felt in Louisville, Lexington, and Bowling Green are certain to be mirrored all across the Commonwealth by communities with similar vulnerabilities.

Despite this, even as other states have established task forces to develop strategies on getting their populations back to work, Kentucky Governor Andy Beshear has yet to do so or to indicate any timeline on when Kentucky's economy might begin restarting. Such a task force can help the state quickly rebound after the coronavirus pandemic has ended.

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