“We got it wrong a little bit last year,” said Monica Jones, Dayton’s director of procurement, management and budget. “We thought the impact from work-from-home would be really acute and really immediate — like flipping a switch — and we haven’t seen that.”
Some groups warn that Ohio’s cities are not out of the woods. They say it’s possible employers haven’t figured out how to track and withhold taxes for remote workers who live in other jurisdictions. Plus more businesses could direct employees to work remotely when their office leases are up.
For this story, the Dayton Daily News spoke to officials in cities such as Dayton, Kettering, Centerville, Trotwood, Vandalia and Moraine about how their city budgets are impacted by the shift to more people working from home.
“The good news is for the most part the fiscal impacts really have not come to pass yet,” said Keary McCarthy, executive director of the Ohio Mayors Alliance. “But there continues to be concern about what the future looks like as it relates to remote working.”
Shift to telework
Like many U.S. urban areas, the Dayton region saw a big increase in remote work during the pandemic.
Last year, nearly 14% of workers in Montgomery, Miami and Greene counties primarily worked from home, according to U.S. Census American Community Survey data that was released in September.
The share of the local workforce who mainly worked remotely more than tripled from 2019. Pre-COVID, slightly more than 4% of local workers primarily worked from home.
Dayton officials for nearly two years predicted that telework could cost the city roughly $8 million to $20 million in annual income tax revenue.
These projections were backed by a study released last fall by the Ohio Mayors Alliance that estimated the city’s annual losses could be between $8.2 million and $21.9 million.
The study also suggested Kettering, Springfield and other Ohio urban areas potentially could see millions of dollars in revenue declines.
But Dayton’s income tax collections were up 7.5% through the third quarter of this year, compared to the same period in 2021, according to city budget documents. General fund revenues increased by about $11 million through the end of September.
Larger refunds
Some people who work for Dayton employers now work from their homes in other communities and may be eligible for tax refunds.
Employers also are supposed to track remote workers and withhold taxes for jurisdictions if their employees work from home at least 20 days of the calendar year.
Dayton owes people refunds if they work remotely in communities with lower tax rates.
Dayton in the first three quarters of this year issued $3.8 million worth of refunds, which was an increase of more than 85% from 2021, city documents state.
Telework was the main driver of this growth, said Jones, with the division of procurement, management and budget.
However, Dayton’s income tax collections well exceeded projections and budget officials said remote work did not result in the kinds of revenue losses they anticipated.
“The work-from-home impact on income tax didn’t really come to fruition in the way we thought,” Jones said.
Remote work is still a financial liability, she said, and Dayton projects that it will lose about $3 million in income tax revenue in 2023 due to telework, which is less than earlier forecasts.
The city believed the work-from-home impact would be more significant and would occur more swiftly, but it is taking time for businesses to create processes and procedures to track and account for remote employees, said Joe Parlette, Dayton’s deputy city manager.
Parlette said many employers seemingly have put the responsibility of obtaining refunds on employees.
Dayton’s $3 million anticipated revenue loss due to remote work is in addition to the increase in refunds, Parlette said, and the city expects to issue about $7 million worth of refunds next year.
Premier Health is one of the largest employers in the Dayton region and is the largest comprehensive health care system in Southwest Ohio.
The vast majority of Premier Health employees work in-person at its health care facilities.
But the health care system’s support functions are based downtown and employ about 1,000 people, said Stacey Lawson, system vice president and chief human resources officer for Premier.
Most of those employees worked remotely during the pandemic and more than half continue to work remotely full-time, she said.
Remote employees have been asked to provide information to Premier to help track demographic changes and ensure the health care system continues to comply with employment laws, Lawson said.
Kettering impact
The study released by the Ohio Mayors Alliance estimated that telework could cost Kettering between $2.7 million and $6.4 million annually.
Through the end of the third quarter of this year, Kettering has processed and issued about 235 refunds worth a combined $464,200, according to Kettering finance director Nancy Gregory.
Refund distributions are up more than 35% from 2021, and the city said it’s still difficult to pinpoint the financial impact of telework.
The increase in refunds could be offset by the number of people who now work from home in Kettering and who previously worked in other taxing jurisdictions, Gregory said.
Kettering lost its second largest employer, Synchrony Financial, fairly early in the pandemic. The company moved out of its home in the Kettering Business Park and its 1,900 workers there were directed to work from home.
The city said it could not share specific details about how this affected its income tax revenues.
Synchrony officials would not break out where its employees are by county or region, but say Ohio remains the state with its most employees, and they recently announced an expansion creating a hybrid workspace in West Chester.
“Synchrony has made permanent the flexibility offerings we started in response to the pandemic,” said company spokeswoman Lisa Lanspery. “We were one of the first companies once fully wedded to an in-office culture to declare remote work an option for all employees.”
Other communities
Centerville said work-from-home changes at very least should be revenue “neutral” and could actually lead to a small increase in collections.
Trotwood said few residents who live there work from home and the city has not seen a meaningful change in income tax collections.
Vandalia thought a shift to work-from-home could be a challenge, but the city’s economy is pretty diverse and its income tax revenues were up 8.9% through the end of October, said City Manager Dan Wendt.
Vandalia is home to a significant number of manufacturers and companies that don’t have office jobs that can be done remotely, he said.
Large employers in the city include GE Aviation Systems, White Castle, Beau Townsend Ford and Adare Pharm Solutions.
Moraine has seen an increase in tax collections due to hourly wage growth, said Don Buczek, Moraine’s finance director.
But the city has issued nearly 100 work-from-home refunds this year, worth a combined $163,660, he said.
“We do see our collections being tempered by increasing refunds,” Buczek said. “In 2023, we expect to see higher work-from-home refunds for tax year 2022 because people will be more aware of the potential refund.”
Coming out the pandemic, employers are still figuring out permanent work arrangements and some may not renew their office leases when they expire in places like downtown Dayton, said McCarthy, with the Ohio Mayors Alliance, which is a coalition of mayors who represent 30 of the largest cities in Ohio, including Kettering, Springfield, Huber Heights and Beavercreek.
“The landscape has not settled in the private sector about where people are situating,” McCarthy said. “This is just a unique time.”
Some employers may have employees who telecommute and they just haven’t started withholding taxes for those communities yet, McCarthy said. Many employers have never needed to track where their employees live for tax purposes, and it can take time to figure out a good system to do that.
Tax receipts also likely are higher than normal right now because of underlying inflationary factors in the economy that won’t last forever, McCarthy said.
Telecommuting plausibly could result in cities seeing 3% to 5% reductions in their income tax collections, which would strain municipal budgets, especially cumulatively over time, he said.
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