Municipalities suffer income-tax decline

Ohio cities and villages are seeing much-needed income-tax revenue plummet as more people lose their jobs or have their pay slashed.

An Akron Beacon Journal survey of all cities and villages in Summit County and select communities elsewhere found that a majority (21 out of 36) experienced no growth or a decline in income-tax revenue over the past four years.

From 2008 to 2009, as unemployment rose to 11 percent in the state, it was even worse.

Only four communities — Boston Heights, Canal Fulton, Orrville and Streetsboro — saw income-tax revenue rise last year. And in three of those places, it wasn't due to local companies going on a hiring binge.

Instead, the increases were the result of voter-approved tax hikes in Canal Fulton and Streetsboro, and a massive highway construction project in Boston Heights.

The worst-hit community was New Franklin, which saw a 21 percent drop. Lakemore, Macedonia, Mogadore, Munroe Falls, Reminderville, Richfield, Silver Lake and Tallmadge all experienced declines of 10 percent or more.

New Franklin officials were surprised with their poor ranking. They noted that Manchester Tool, which employed about 100 workers, closed at the end of 2008, but they couldn't explain the reason for the major decline other than overall unemployment.

The $200,000 drop in revenue is a major hit for the community, Mayor Al Bollas said, but he added that local leaders have been conservative with their spending and aren't hurting like other communities.

''I don't buy anything unless it's [with] cash,'' he said. ''We don't owe anybody anything.''

Important source

Cities and villages rely heavily on income taxes. In some cases, the revenue makes up more than half the community's operating budget.

So when income-tax revenue falls, it's a major cause for alarm.

Communities have responded by cutting workers, services and wages, and delaying capital projects.

Some have tried to raise revenue in other ways. Munroe Falls started a police academy. Munroe Falls and Cuyahoga Falls also began mayor's courts.

Euclid, a Cleveland suburb, did away with its 0.75 income-tax credit. Macedonia Mayor Don Kuchta has suggested cutting his community's tax credit in half.

In some cases, voters already struggling with their own financial setbacks have agreed to boost the local income-tax rate to offset the decline. Like Canal Fulton and Streetsboro, Mogadore and Twinsburg have approved income-tax increases in recent years.

''We do have some cities seeking income-tax increases because they have cut and cut and cut for so many years, and then on top of that you get a 7 percent or 10 percent decrease,'' said John Mahoney, deputy director of the Ohio Municipal League in Columbus. ''They say, 'Oh my gosh, we can't do this anymore.' ''

Mogadore Mayor Michael Rick said it was no secret that revenue was down. After all, this spring voters were asked — and agreed — to increase the 2 percent income tax by a quarter percent. The increase will go into effect July 1 and raise $240,000 a year, resolving an expected year-end deficit nearly that large.

''But I didn't know where we were compared to everyone else,'' Rick said after learning of his town's unfortunate distinction.

''We lost maybe one mid-size business, but the rest was probably just downsizing of a lot of companies,'' Rick said.

There's no quick turnaround expected, city and village leaders said.

Many communities have forecast at least a 3 percent decline this year. It's better to be conservative, they said.

''I would rather explain why we have a surplus than why we have a deficit,'' Stow Finance Director John M. Baranek said.

Urban cities

Ohio's major cities all experienced a drop in income-tax revenue last year, led by a 9 percent — $10 million — dip in Dayton.

The decline was 8 percent in Cleveland and Toledo, and 5 percent in Cincinnati.

Akron's income-tax revenue dropped $8.7 million, or 7 percent, last year.

Columbus fared the best with only a 1 percent drop. But the state capital also benefited from a 0.5 percent income-tax increase that took effect in October.

Cities and villages aren't the only ones to see a decline.

Ohio's income-tax revenue has dropped 13 percent since 2006. Last year, revenue fell nearly $1.5 billion.

What's happening

In some communities, it's easy to explain the decline.

For example, in Lakemore, the Akron General Edwin Shaw Rehabilitation Institute and Lakemore Elementary School closed, meaning there are now fewer people paying income tax in the village.

In other places, it's more difficult to pinpoint.

Munroe Falls Mayor Frank Larson said there is no single significant contributor to the major one-year drop in his community, just an overall decline caused by the economy.

The city of 5,300 responded with some cuts — one employee was laid off and hours of some other positions were cut — but mostly, the city reacted by looking for ways to increase revenue.

In 2008, the city established a community improvement corporation and aggressively pursued state and federal aid, like a $250,000 grant it won to help repave state Route 91.

''Without that, the money would have come out of our own pocket,'' Larson said.

Then last year, the city established a police academy and a mayor's court, both bringing in new money to the city's coffers.

The idea of raising income taxes to make up for the loss was not a consideration for Larson, who ran for the job in 2003 because of an income-tax flap.

At that time, City Council lowered the income-tax credit from 100 percent to 70 percent. That would mean that residents who worked for another city would still pay full taxes to the city of their employer, and an additional 30 percent to Munroe Falls.

One day after the council approved the credit change, Larson began circulating petitions to put the issue on the ballot. Voters not only restored the full credit, but also approved a charter amendment preventing the council from trying it again — and put Larson in the mayor's seat.

Larson said the key to trying financial times is communication with residents. The city does a rolling five-year financial plan so future problems can be spotted and dealt with.

''In 2005 we had a little dog-and-pony show where we went out and talked to the people about our five-year projection,'' Larson said. ''We've always known at some point in time we were going to be needing to see some increase in revenue. . . . It may be time to do that again.''

Very lucky

Orrville is an oasis when it comes to income-tax revenue.

The Wayne County city — home to the J.M. Smucker Co. — saw a 24 percent increase last year.

''We're a real fortunate community here,'' Mayor David Handwerk said.

He cited diversity among employers and the fact some new companies moved in as others closed. For example, when American Weatherseal shut down, Holtec International Inc. took over its plant last year.

Scotts Miracle-Gro also moved in last year.

Many of the longtime companies are family-owned.

''They continue to prosper,'' the mayor said. ''Some of them have hit rough times, but family industries are less likely to pack up and move to another country or another area.

''I wish I had some great magic formula, but I think it's just a community that works well together. We try to support the industries we have.''

If Orrville is an oasis, Boston Heights might be the luckiest community. The small Summit County village saw a nearly $100,000 revenue increase last year.

The law firm of Bevan & Associates moved into the village, but the biggest factor was the Ohio Department of Transportation's ongoing project to rebuild the state Route 8-Ohio Turnpike interchange, Mayor Bill Goncy said.

Those construction workers pay local income taxes.

The mayor said the village has no specific plans to spend the extra cash, and officials are well aware that it's revenue that will go away when the project is completed in June 2011.

Kent is also fortunate, buoyed by Kent State University and the income taxes paid by 3,829 people who work on campus.

Industry jargon calls an asset like KSU ''sticky capital,'' meaning it would be nearly impossible for it to pick up and leave the way a business might.

While Kent experienced slight declines in income-tax revenue, ''we are very fortunate to have the presence of Kent State University along with the benefits it provides to our community, including its stabilizing influence on our tax base,'' Finance Director David Coffee said.