An amendment to state law overwhelmingly adopted by the Kentucky General Assembly and with near unanimous support from Northern Kentucky legislators has given cities with populations under 20,000 people to impose an additional tax on the sale of alcohol by the drink or package.
Newport is considering the move, amid what City Manager Tom Fromme said was increased costs related to policing alcohol-related businesses and associated criminal activity.
On Tuesday, June 18, when the 2019-20 fiscal year budget is presented, Fromme said that a proposed alcohol regulation fee would be included at a rate of 2.5 percent. Businesses that sell alcohol would have to pay the city the additional revenue quarterly.
The state gives the city the option of imposing such a fee of up to 5%.
"After calculating our costs, we believe that's reasonable," Fromme said. "We're not looking to get anybody in particular; we try to avoid that. We have done extensive review of our total costs, we looked at costs for services and dealing with alcohol-related issues."
Those include squad calls and transports to area hospitals. Fromme said that more than 20% of all police calls in Newport are related to alcohol, whether calls to particular businesses for violations or for impaired driving.
The city spends nearly $6 million annually on its police force, and Fromme said that the cost of one officer is more than $100,000.
The proposed fee, which would impact restaurants, bars, breweries and retail stores, would raise around $750,000 annually, he said.
Newport entities and individuals that currently hold an alcoholic beverage license first received a letter in November, signed by assistant city attorney and for city commissioner John Hayden. It explained that the city was evaluating its options related to licenses that allow for alcohol sales to 2:30 a.m. The city was considering eliminating extended-hour licenses altogether, which would prohibit alcohol sales in the city after 1 a.m. The other option was to increase the cost of such licenses, which are more expensive to obtain than licenses that allow sales to 1 a.m. Hayden cited the city's concerns with the costs of enforcement.
In April, the same license holders received a new message, this time from Fromme, explaining that it had been decided not to change anything related to extended-hour licenses, which cost $3,000 annually. Fromme cited the new opportunity to tax all alcohol sales instead as the reasoning, in addition to concerns from business owners.
The potential revenue to increased fees for extended-hour licenses would not raise anywhere near the same amount as the individual sales tax, he said. "We could never raise enough to cover the cost," Fromme said. Doubling the cost would raise about $150,000 while tripling would make it around $225,000, he said.
Most alcohol license holders in Newport are only permitted to sell alcohol until 1 a.m., he said.
"A lot of establishments probably wouldn't extend their hours. It's no-win. There's nowhere to go with that," Fromme said.
Some members of the business community and the Northern Kentucky Chamber of Commerce have been engaged with the city as the discussions on the matter continue.
At least one business owner is concerned that the revenue would be used to offset other budget concerns, not just police enforcement.
"The frustrating part for all of us is, what our understanding is of that particular law, was how the city intends to use money or to get revenue to pay for and balance their budget. That's not what it's intended to do," Kim Newberry said of the proposed fee. She is a co-owner of Newberry Brothers Coffee & Prohibition Bourbon Bar on Washington Street. "The city has also not provided anyone with any data that supports what this additional cost to the city is, with respect to alcohol and enforcement. I don't think they have it. I think it is just them taking a revenue source and doing with it what they need."
Part of Newberry's concern is how she would administer the fee increase. Alcohol is already taxed at 6 percent by state law. Newberry thinks she would have to increase that tax to 8.5 percent, but keep separate records for non-alcoholic sales that would be taxed at 6 percent. "Administratively, it's a pain," she said.
One benefit, Fromme said, is that the fee amount collected by the businesses can be used as a credit against the costs of their alcohol sales licenses.
"This benefits smaller guys," Fromme said. "They would pay less than they pay now because the licenses - it doesn't matter what your volume is, large or small, the license price is identical. With this, you get credited back."
"Until I see something in writing, I'm not sure what that means," Newberry said of the credit proposal. "I'm taxing my customers. This is a tax. This isn't a fee, and that's what I think is the frustrating part of it.
"I could be overthinking it but I guess I won't know until it happens."
Like many cities across the state, Newport is faced with staggeringly high and increasing pension contribution obligations. Police, as hazardous duty employees, are particularly costly to city budgets on pension matters.
But Fromme said the city is looking for new ways to generate revenue, with the state's rules being one of its biggest hindrances.
In the upcoming budget, rental licenses could also see a spike. "I'm not just dinging alcohol," Fromme said. "We're looking to cross a broad spectrum so we don't put all our eggs in one basket. We have looked at rentals. We have a lot of problems with rental properties, and they don't pay their fair share either."
"I don't mind paying my fair share to the city," Newberry said, "but they have to be accountable."
Tuesday's meeting, which will be a special meeting to allow for a first reading of the proposed budget, does not yet have a time announced. On Monday, the Newport city commission will meet at 7 p.m. for its regular meeting.
This story first appeared at The River City News.