As the city of Akron’s budgeting process gets under way, officials are confident that income tax revenue will climb steadily as the local economy continues to recover from the deep recession. Still, the city’s operating and overall budgets are projected to be essentially flat this year, with staffing levels below pre-recession highs and little in a rainy day fund.
Since 2010, when it dropped to a low point of $107 million, annual income tax revenue has climbed above pre-recession levels. This year, city officials project a 2.5 percent increase, with about $127 million available for operating and capital expenses. In 2007, income tax revenue stood at about $119 million.
So why is the city’s budget flat-lining if its main revenue source is rising? The answer lies at the Statehouse, where Gov. John Kasich and fellow Republicans in control of the legislature have slashed the Local Government Fund, ended the estate tax and accelerated the phaseout of utility and tangible personal property taxes.
The Local Government Fund, a longstanding tax-sharing mechanism, has been a key source of city operating funds. Since the state budget cuts began, the city has lost a total of about $28 million. In 2011, Akron’s share of the Local Government Fund was $12.4 million. Then cuts hit hard. For 2014, the city will receive about $6 million, or roughly $500,000 less than last year.
Estate tax revenue, averaging about $4.4 million a year for the city in recent years, will drop to near zero in 2014. The sharp phaseout of utility and tangible property tax will result in just $83,000 this year, down from $136,000 last year, after being budgeted at $1.7 million. Revenue from gambling, wildly overestimated by proponents before passage of a casino amendment in 2009, is not coming anywhere near making up for the losses. Last year, the city received $3.4 million. It expects about the same this year.
Almost $30 million in federal grants for police officers and firefighters helped nudge the number of city employees up to about 1,800 last year, with more hires planned this year. But the grants expire in 2016, the city expected to pick up the tab from there. Work on the combined sewer overflow project also has increased city employees slightly. Yet in 2008, the city employed some 2,200, before the belt-tightening.
The city has responded on several fronts to seek alternatives and shore up the budget, pursuing the economic development needed to boost income tax revenue, tightening spending and limiting wage increases. The city thus has absorbed the financial burden that has allowed Republicans at the Statehouse to take credit for cutting taxes and balancing the state budget.