COVINGTON — Kenton County Judge-executive Dick Murgatroyd said Monday he was “disappointed but not surprised” by the Kentucky Supreme Court's refusal to hear an appeal of a ruling that effectively killed most of the county's year-old payroll tax increase.

        The increase — which took effect on Jan. 1 — was passed to help pay for a controversial jail that authorities said was much-needed.

        Except for issuing a brief written statement saying that they would meet with the county's lawyers “to chart our course from here,” Mr. Murgatroyd and other county leaders could not be reached for comment on the implications of the order issued Wednesday by Joseph Lambert, chief justice of the Kentucky Supreme Court.

        Effective Jan. 1, the county payroll tax cap — the maximum amount on which the tax is collected — rose from $25,000 a year to $76,200 a year. County officials had voted six months earlier to triple the cap on wages taxed.

        Within weeks after the payroll tax cap increase took effect, the city of Covington and Corporex Cos. filed suit to stop it, saying they thought it was unenforceable and would hurt countywide economic development efforts.

        Last May, Kenton Circuit Court Judge Patricia Summe ruled that Covington taxpayers — workers and businesses — could offset their county payroll tax increase through a credit for taxes paid to the city of Covington. The county then appealed that decision.

        Covington Mayor Butch Callery and other city officials had argued that the tax cap increase — which raised some workers' tax by 220 percent — would hinder Covington companies' efforts to attract and keep good workers.

        Mark Guilfoyle, a lawyer who represented two parties that intervened in the payroll tax cap challenge — SECO Electric in Covington and the Greater Cincinnati Building and Trades Council — Monday called upon the county to immediately refund the disputed tax increase.

        “The county has lost its motion for transfer, and it will lose this case,” Mr. Guilfoyle said. “After wasting six months on a pointless attempt to bypass the Ken tucky Court of Appeals, the time has come for the county to quit posturing and to refund the people's money.”

        County officials said earlier that they bypassed the Kentucky Court of Appeals and appealed directly to the state Supreme Court largely to resolve the dispute sooner.

        However, in a two-sentence order, Chief Justice Lambert denied the county's motion to appeal directly to the state Supreme Court. He added that all seven justices agreed.

        “Obviously, I am disappointed the Supreme Court did not see the urgency in an expedited review of this matter although I know that to have done so would have been a rare exception,” Mr. Murgatroyd said in his written statement issued Monday. “While I was optimistic we could get the funding issue resolved this year so that we (could) finalize a plan and move on with building a jail, I knew the odds were not in our favor.”

        Kenton County Treasurer Ivan Frye said Monday that employees in Kenton County who earn more than $25,000 a year are continuing to pay the payroll tax increase. However, he said that money won't be spent, until a final ruling is issued on the legality of the tax.

        “We're putting it in escrow by default,” Mr. Frye said of the payroll tax capincrease. “We appropriated only the amount of (payroll tax revenue) that was appropriated in prior years.”

        Mr. Frye said no decision had been made on whether to pay interest on any refund the county might make, if the courts ultimately rule against Kenton County.

        When Kenton Fiscal Court voted last year to raise the cap on the payroll tax, Mr. Murgatroyd said the additional $5 million in annual revenue was needed to pay for road improvements and to free up money to cover the bonds on a new $35 million jail.

        On Monday, Mr. Murgatroyd described the state Supreme Court's ruling as “strictly procedural” and added “it had nothing to do with the merits of the case.”

        “What is more troubling to me than the court's ruling is that county leaders have talked about a jail without discussing a way to pay the bill for more than 10 years,” Mr. Murgatroyd said in his statement.

        “I sought to put a funding mechanism in place and find myself being challenged by the city of Covington, which is collecting a tax three times higher than the county's and where more than 40 percent of all arrests in this county take place.

        “It is unfortunate the city not only sued the county to block the cap (but) went so far as to file an objection to (the county's) motion to bring this issue to closure through an expedited review.”

        Mr. Callery said that not all of the arrests made in Covington, which represents about a third of the county's population, “are necessarily Covington people.”

        “That money we've collected through our aggressive economic development has gone into services and made us a more livable city,” he said.

        Mr. Callery said the city challenged the payroll tax cap increase “not to stop a jail,” but because of concerns that it was illegal and would hinder economic development throughout the county.

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