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A first-class demotion in Kentucky

By: Joel Peyton

Imagine it’s the last day of the school year. A sixth-grader walks proudly to the podium and receives a diploma from his teacher. She says: “Congratulations, you’ve graduated – to the fifth grade!” Picture the expression on this student’s face!

Recently a similar situation occurred at a hastily called special meeting of the Corbin City Commission. After claiming for weeks that town coffers were nearly empty, commissioners voted to lower Corbin’s designation as a third-class city and make it a fourth-class one instead.

This downgrade makes new sources of tax receipts available to local elected officials who are spending taxpayers’ hard-earned money as if it grows on trees. By meekly approving the change, the 2005 Kentucky General Assembly missed yet another opportunity to protect taxpayers.

Accepting this demotion enables the commission to enact a restaurant tax, which, if passed, will result in annual tax receipts of $800,000 to $1 million for the city’s tourism agency. Commissioners plan on using much of the money raised by the new tax to fund operational costs of a new convention center.

Corbin’s politicians offer the standard “this-project-will-bring-badly-needed-new-business-to-our-town” line to support such a facility. Yet a recent study by the nonpartisan Brookings Institution points out that additional taxes must often be raised to make up for declining attendance at convention centers across America.

It’s not likely to be any different for the planned Southeastern Regional Agriculture and Exhibition Center planned for Corbin. Still, state legislators who represent the region insist the project is vital to the region’s growth.

Rep. Charlie Siler, R-Williamsburg, said a new facility will enhance the new Corbin Technology Center, which was built last year on property adjacent to the land set aside for the convention center.

However, one can only imagine the problems that a new convention center would face in Corbin – especially considering the current state of disrepair at its new technology center, which has sat empty since it was built. An inspection last month found water damage from a leaking roof and dysfunctional sinks, toilets and lights. With such a lackluster operational track record, this planned facility will not be the economic development powerhouse its backers expect.

Corbin does not have an economic-development problem. Rather, it is addicted to bad spending habits. Expenditures have increased by 356 percent since 1993, yet taxpayers have received woefully little in return.

In 1993, the city’s revenues were $3.4 million, which far outpaced its expenditures of $2.5 million. But the pattern has changed in recent years. Last year, Corbin’s council spent $8.8 million while bringing in only $8.3 million.

Since 2002, the city has consistently outspent its taxing base. And some of its spending decisions appear to have been quite detrimental to the community. For example, most of the expenses generated last year were for the Corbin Technology Center, which thus far has been a colossal flop.

Even as Corbin commissioners push their gravy train down the track, Elizabethtown restaurant owners and opponents applied the skids to a similar attempt. An attempt to enact a 4-percent restaurant tax to build a new convention center in Elizabethtown failed when a majority of council members decided the costly project would not be an economic success.

There is good reason to be skeptical about these types of projects. Convention-center consultant David Petersen says only “two or three” centers in major markets in North American will actually generate enough income to pay for expenses.

For instance, Washington, D.C. advocates touted a new convention center, telling wary taxpayers that revenues from events held at the facility would pay the debt service on the new facility. But because of facility rental shortfalls since the convention center was built, taxpayers now shell out an additional 1-percent tax on restaurant meals and auto rentals, a 2.5-percent tax on hotel rooms, a surcharge on the city’s corporation tax and a surtax on the unincorporated business tax.

All of these additional taxes subsidize a convention center that advocates initially believed would pay for itself. Yet with all of these subsidies, D.C.’s convention center operates at a loss!

A similar situation could easily develop in Corbin, where convention-center booking opportunities likely do not rival those in our nation’s capitol. As a result, when the taxing well runs dry from the giant sucking sound the new convention center is sure to create, the citizens of Corbin can expect a barrage of new taxes.

Returning to the fifth-grade may seem like a smart move for Corbin politicians hopelessly addicted to a never-ending supply of taxpayers’ monies. But it’s a demotion their constituents don’t deserve.

– Joel Peyton is a Western Kentucky University student and an intern with the Bluegrass Institute, Kentucky’s free-market think tank

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