Numerous area cities have made or are considering tax credit reductions to balance their budgets in the wake of reductions in state aid. Clayton halved its tax credit, starting this year. West Milton did away with its credit last year. Lebanon is considering it as one of several options to shore up its budget.
The result is many residents end up paying a local income tax in two and sometimes multiple jurisdictions depending on where they work.
“They have no choice,” Brookville Mayor David Seagraves said of the municipalities slicing the tax credit. “Communites are dying on the vine.”
Kent Scarrett, spokesman for the Ohio Municipal League, said cities have spent decades trying to avoid reducing the tax credit — one of the few ways city councils can increase tax collection from their residents without a popular vote. But state cuts no longer made that feasible, he said, as the elimination of the estate tax and reduced state aid cost local communities a combined $550 million a year.
“These are fiscal cliff conversations about what is the last thing we can do? What is remaining in our toolbox?,” he said. “And they don’t’ like to go there (to a tax credit reduction) but when it’s that or getting rid of police and fire, continuing to put off capital needs that are critical to their communities, these decisions have to be made.”
Brookville has a 2 percent income tax. Under the proposal, the city would cut in half the credit the city gives residents who work elsewhere. For example, if a Brookville resident works in Dayton, he or she pays Dayton’s 2.25 percent income tax.
Currently, that resident pays nothing to Brookville. If the proposed ordinance passes, he or she will pay Dayton’s income tax, plus a 1 percent income tax to Brookville.
Brookville controversy
Reducing the credit would raise $784,419 in new revenue, which city officials say is needed to pay for a new fire station.
“We can no longer ignore our current condition in our current facilities,” said City Manager Gary Burkholder. “This truly is a public safety issue.”
But critics note that Brookville voters just approved increasing the city’s income tax from 1.75 percent. The measure passed in May 2015 by 46 votes.
“I just don’t think it’s right,” said John Wright, who retired last year after serving more than three decades as Brookville city manager. He said the city has enough money to pay for the new fire station.
“It’s just about living within your means, and prioritizing your expenditures,” he said.
Rob Rutherford, vice president of the Brookville Building and Saving Association, said he is concerned people will choose not to live in Brookville because of the tax.
“It’s going to be a lot more far-reaching than council thinks,” he said.
Burkholder said since the May vote, the city has identified other imminent capital needs. And the city lost the companies Parker Hannifin and 3M, taking with them more than 200 employees and $205,000 in annual income taxes.
“We have looked at this for months and there’s just no other avenue,” Seagraves said.
Other area cities
Clayton officials last fall approved cutting the city’s tax credit in half, effective this year. Clayton’s municipal income tax rate is 1.5 percent. The credit reduction is expected to raise an additional $1.1 million to pay for redoing roads throughout in the city and upgrading road crew equipment and vehicles.
Lebanon city council this month received a staff presentation on several “general revenue enhancement options” to pay for road improvements. One of them was to cut the tax credit in half, raising about $600,000 a year.
West Milton in 2014 did away with its tax credit. The city’s 1.5 percent income tax revenue from 2015 is projected at nearly $1.3 million, which is more than $200,000 over what it collected before the rollback.
“By eliminating the credit, all that did on the bottom line is literally replace almost dollar-for-dollar what we lost from the local government fund from the state of Ohio,” said West Milton City Manager Matt Kline. “That is the only reason we had to get rid of the credit.
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