Oops. Lexington discovers more than 1,000 homes, businesses not paying enough taxes

More than 1,000 parcels connected to homes and business in Fayette County will soon be paying more in city service taxes after the city discovered those parcels were not in the correct taxing district.

The city estimates that once the 1,181 parcels are moved to the correct taxing district, it will generate an additional $389,635 in taxes to the city’s urban service fund, which pays for things such as street lights, trash pick up and street cleaning, depending on the taxing district. Overall, the urban service fund generates $50 million a year.

A Lexington-Fayette Urban County Council work group has been trying to suss out how many parcels in Fayette County are not in the correct district for more than two years. The Budget, Finance and Economic Development Committee unanimously approved the changes during a meeting Tuesday.

Councilwoman Kathy Plomin said a tax discrepancy in her district in 2018 led to the creation of the work group to determine how many neighborhoods or areas are not in the correct district. That work was delayed by the coronavirus pandemic.

The city has multiple taxing districts based on the services a street or a section of a street receives. It’s a percentage of the value of the property, depending on the district.

Here are the tax districts:

• Tax District 1 is full service and the highest tax rate. The services include street cleaning, trash pick up and street lights.

• Tax District 3 is trash pick up only.

• Tax District 4 is street lights only.

• Tax District 5 is trash pick up and street lights.

• Tax District 6 is street lights and street cleaning.

• Tax District 7 is trash pick up and street cleaning.

• Tax District 2 is no longer used.

The city has used sometimes antiquated processes to track which areas are in which tax district.

That’s led to problems and many homeowners getting free services.

For example, the Lexington Herald-Leader reported in November 2021 that 53 homes on Glendover Road had received free trash pick up and street cleaning for eight years. The street had petitioned the council in 2012 to move to Tax District 1 after it had been in Tax District 4, which only pays for street lights.

The change was supposed to take effect in 2013. It never happened due to a transcription error. It wasn’t until 2022, after the Herald-Leader story, that the error was finally fixed.

The work group, which included city council members and city staff, found that address transcription errors resulted in 102 parcels in the wrong taxing district.

Here are some of the other errors and problems that resulted in parcels placed in incorrect taxing districts:

• Plat omission: 393

• Private street: 147

• Street lights installed but tax not added: 518

• Tax exempt: 21

Jennifer Sutton, a research analyst for the council, said the city reviewed thousands of parcels to determine the correct taxing district. Some of the problems date back to the merger of the city and county in 1974.

Tax exempt properties will not have to pay the taxes, but will be moved to the correct taxing district, said Eve Miller, a senior environmental planner for the city. That way if the building is sold to a for-profit company, that company will be in the correct taxing district.

Parcels that have been receiving city services without paying the appropriate tax will be moved to the correct district starting next year. Those tax bills won’t change until 2024.

Many of the errors occurred when a new development came online and there were problems with the plats and addresses not matching, city officials said.

The city will not ask those homes or businesses for back taxes, city officials have said. It was not the property owners’ fault.

Fixing the problem going forward

To fix the problems, the city is automating more services to ensure there are fewer errors.

When a street or a section of a street moves from one tax district to another, it is approved by the Lexington council. That list used to be manually sent to the Fayette County Property Value Administrator’s office to change. In the case of Glendover Road, those homes never made it to the PVA’s office.

Attempts to correct the error failed year after year.

Now, that information is sent electronically to cut down on human errors.

Plat reviews can now be done via computers versus paper maps.

The process to petition the council to move to a different taxing district can also be done online rather than snail mail, which will help neighborhoods that want to petition for a change in tax district. It will also help city staff keep track of those changes, Sutton said.

Geographic Information Systems, commonly referred to as GIS, will also be incorporated into the process to make sure plat maps, which are filed when a neighborhood is first developed, and addresses match, Sutton said.

The city is also updating the internal manual used to oversee the process.

Councilwoman Whitney Elliott Baxter said one of the properties in her council district will see a more than $2,000 increase in property taxes as a result of the changes. That’s because that property is worth a lot of money.

Baxter asked if homeowners could petition to have a gradual increase in taxes.

Miller said by law, they have to move people to the correct taxing districts. There will be a public meeting before the taxes are changed in January, city officials said. Property owners affected will receive notice in the mail.