Council to set ad valorem tax rates for FY26

In August 12th's Council Work Session, Councilmembers will set the ad valorem tax rates for Fiscal Year 2026 (FY26).

Ad valorem taxes are property taxes assessed on assets like homes and real estate, machinery, motor vehicles, boats, personal planes, or agricultural products.

Fayette County’s ad valorem taxes are split between multiple entities. Fayette County Public Schools gets the majority of ad valorem taxes (64.1% in FY25), while the rest are split between State Government (9.1%), Lextran (4.7%), LFUCG’s General Fund (6%), LFUCG’s Urban Services Fund (14.1%), and other agencies (2.3%).

• Lexington’s Urban County Council can only set rates for the city’s General Fund, Urban Services Fund, Soil and Water Conservation, Extension Office, and Health Department. Each of these funds has its own tax rate.
• FCPS and the State of Kentucky set their own ad valorem tax rates.

The Mayor's Administration will provide Council multiple rate options, as well as a recommended option for both the General Fund and the Urban Services Fund.

For the General Fund, Council has three taxing options:

1. Council can keep rates the same as last Fiscal Year. This option would raise the most revenue of any option, largely due to how sharply property values have increased in Fayette County.
2. Council can set a Compensating Rate. This option would raise roughly the same amount of revenue as was raised in the previous Fiscal Year.
3. Council can set a rate that raises revenue by 4% from the last Fiscal Year.

According to State law, if cities set a tax rate that raises revenue by more than 4%, that tax rate is subject to a recall vote.

• A recall vote would be triggered if 10% of Lexington voters in the last Presidential election – which equals 14,547 people – signed a petition for the vote. Lexington residents would vote in November 2025 on whether or not to change that rate.

The Mayor's Administration is recommending Council follow Option 3 and set a rate that raises 4% more revenue. That would be a tax rate of .075 cents per $100 of taxable property value.

• A homeowner who owned a $260,000 house would pay $195 toward the General Fund under the Option 3 tax rate.
• That same homeowner would pay $197.60 under Option 1 (.076 cents per $100) and $189.80 under Option 2 (.073 cents per $100).

For the Urban Services Fund, Council has four options: the same three options as the General Fund, plus a Cost of Service option.

Council will have four options for the Urban Services Fund tax rates: the three same options for the General Fund, as well as Option 4: Cost of Service. This option would fully fund all of the services provided through the Urban Services Fund.

• Historically, Council has not set Urban Services Fund rates at a level that fully funds all of these services. Money is often pulled from the General Fund to fill the gap in service costs.
  • A Cost of Service Rate would allow the ad valorem tax to fully fund these services so that Council would not have to take money from the General Fund to fill any budget gaps.
  • Street lights and street sweeping have been fully funded through the Urban Services Fund for the past few Fiscal Years, but waste collection is still underfunded.

The Mayor's Administration is recommending Council adopt Option 3, which raises revenue by 4% just like their recommended General Fund rate.

• A homeowner who owned a $260,000 house would pay $449.80 toward the Urban Services Fund.
  • The same homeowner would pay $455 under Option 1, $434.20 under Option 2, and $460 under Option 4 (the Cost of Service Option).
• Option 3 would raise enough revenue to fully pay for street lights and street cleaning, but would not raise enough to fully fund waste collection.

Council will have an initial vote in this week's Work Session to set the rates. The rates will receive First Reading in August 14th Council Meeting, and then a public hearing and final vote of approval will be held on August 28th at 6pm.