Cities in Valley fear income tax losses
City leaders in the Mahoning Valley are fighting against proposed legislation in the Ohio Senate that would eliminate their ability to collect income taxes from people working remotely, outside of the communities where their jobs are located.
Warren Mayor Doug Franklin recently asked city council to approve a resolution opposing the legislation, Senate Bill 352 sponsored by Sen. Kristina Roegner, R-Akron, that, if passed, could significantly reduce the amount of income taxes being collected by the city.
The Ohio Legislature in March approved House Bill 197, also known as the coronavirus relief bill, which, in part, has allowed communities in which a company is located to continue to collect income taxes from workers that may be working remotely from homes in different communities.
Roegner’s bill would return the state to its pre-pandemic period where taxes are collected in the communities where the work is being done, not in the communities in which the company may be headquartered, but the worker is not located.
The workers should not be paying taxes in communities where they aren’t working, Roegner said. “The taxes paid should be going to the communities that are providing services to the workers.”
HB 197 was approved to help communities and businesses to survive when much of the state shut down due to the pandemic.
If the Roegner legislation passes, Warren, for example, could lose 30 percent to 40 percent of its general fund revenue. Warren collects 2.5 percent in income taxes from people who work in the city.
A 30 percent loss represents $5,153,269, according to city Tax Administrator Thomas Gaffney. A 40 percent loss would reduce the budget by $6,871,026.
“The income tax is the most significant portion of the annual budget,” Gaffney said. “Losing approximately a quarter of the city’s annual budget would be devastating. There would, undoubtedly, be many layoffs.”
The resolution that city council likely will vote on will be based on one provided by the Ohio Municipal League to cities across the state that oppose the repeal of the section of HB 197 that allows communities to collect taxes from people working remotely, outside of their communities.
The resolution states the repeal would create substantial revenue cuts and destabilize the budgets of Ohio’s largest economic centers.
John Brown, Warren council’s finance committee chairman, said the resolution has been turned over to the law department and is expected to be discussed and then voted on by council.
“What has been proposed by state legislators could have an adverse effect on cities,” Brown said, noting he is still studying it.
Youngstown’s interim finance Director Kyle Miasek said he would be very concerned about the damage to the city’s budget if Senate Bill 352 is approved.
“It’s potentially devastating for us,” he said.
Youngstown gets about 85 percent of its income tax from those living outside the city.
The city’s 2.75 percent income tax was budgeted to bring in $46,214,000 this year, but because of the COVID-19 pandemic, it should finish the year about $2.6 million to $2.7 million short of that projection, Miasek said.
It raised $46,664,000 in 2019.
“We have serious concerns about potential refunds and the amount of money going forward,” Miasek said. “The amounts impacted by the cities will be staggering.”
If the legislation is approved, Miasek said it’s uncertain if it would be retroactive and when it would take effect.
“We would need time to come up with solutions,” he said. “If it happens, the city — and several other cities — would have to lay people off and cut services.”
Also, if cities are inundated with requests for refunds, they don’t have the staff and time to evaluate all of them, he said.
Girard Mayor James Melfi, who previously worked as the city’s treasurer, said he understands both sides of the argument– for and against the repeal.
“This is going to end up in court,” Melfi said. “What must be determined is whether employees are working entirely at remote locations away from their offices or do they sometimes work at their office locations.”
“While I am always going to look at what is best for cities, I could make an argument for both sides,” Melfi said. “Do workers sometimes return to the office to attend meetings? Are they working in other communities 100 percent of the time?”
Melfi said income tax collection in Girard is $250,000 lower now than it was last year at this time.
“It is about an 8 percent drop in our revenue,” Melfi said. “Some of this may be COVID related, but we do not know for sure.”
Kent Scarrett, executive director of the Ohio Municipal League, would like legislators to carefully consider the ramifications of repealing the emergency policies in HB 197, because the repeal would negatively affect cities.
“Cities may lose hundreds of thousands of dollars in income taxes, affecting their ability to pay for police, fire and ambulance serves,” Scarrett said.
Scarrett said the Ohio Municipal League would like the existing law to remain in place for at least three years, through 2023, which will give the nation and the state time to get control of the pandemic and begin to reverse the financial damage done to the economy.
“No one is talking a permanent change,” Scarrett said.
The Buckeye Institute in July filed suit against the city of Columbus and the state of Ohio in an attempt to overturn this portion of the HB 197. Founded in 1989, The Buckeye Institute defines itself as “an independent research and educational institution–a think tank–whose mission is to advance free-market public policy in the states.”
(Vinidcator reporter David Skolnick contributed to the story.)