Dayton projects lower revenue, higher spending in 2022

Federal funds will fill budget gap; 2021 finances were solid, but city says “fiscal cliff” is coming in 2025

Dayton plans to increase general fund spending next year even though it expects to lose more than $7 million in income tax revenue because of work-from-home changes.

The city intends to use $12.4 million in one-time federal funding to bridge the gap between expenditures and collections in the general fund, according to the Dayton city manager’s recommended 2022 budget.

But budget officials warn that Dayton faces a “fiscal cliff” in 2025, and they say the city must figure out some long-term budget solutions before then if revenues do not improve.

“The city’s revenues rebounded in 2021, but we do expect them to taper off somewhat in 2022, especially in the general fund given the work-from-home situation,” said Diane Shannon, Dayton’s director of procurement, management and budget.

Dayton expects to receive about $135.9 million from its earnings tax in 2022 — down about 5% from $143.2 million this year, according to the recommended budget.

The city’s 2.5% income tax accounts for nearly three-fourths of the city’s general fund revenues.

But as a result of the COVID-19 pandemic, many people who worked downtown and elsewhere in the city are now telecommuting, many from other cities and townships. Starting next year, people are expected to be taxed at their actual work location — not where their offices and employers are located.

The sizable shift to remote work could be temporary — but city officials fear some workers will never return to the office, even if the public health crisis finally comes to an end.

Dayton’s finances turned out to be much better this year than originally anticipated, due to federal stimulus funds and a rebound in the economy, including a surge in business profits, Shannon said.

Next year, Dayton plans to increase general fund spending by 2.7%, compared to the revised 2021 budget.

The city manger proposes to use $10.7 million of its $138 million in federal American Rescue Plan Act (ARPA) funds for revenue replacement.

The city also plans to balance its budget with the help of $1.65 million in FEMA dollars, which were awarded to reimburse costs related to the Memorial Day tornadoes.

The ARPA funds give the city a “runway” to find other methods to balance the budget in 2023 and beyond, Shannon said.

It’s possible the city will use rescue funds for revenue replacement for multiple years to come.

Dayton next year is giving its workers a 2% pay increase and a $1,400 lump sum payment, and the budget pays for some new positions and the restoration of others, which is partly tied to a reorganization of various departments, officials said.

The Human Relations Council will be able to increase staff, and the recreation department will have some positions restored for a new sports division.

The city’s community engagement division will receive funding for some new hires, and the budget includes money for some police reform priorities, including new staff for the alternative 911 mediation response program.

The budget is the most important policy tool for addressing city commission priorities, said City Manager Shelley Dickstein. She said the 2022 budget was developed with a special focus on equity and inclusion.

Dayton’s general fund spending will be $198.8 million next year — up more than $5 million from 2021 and nearly $12 million from 2020.

Federal rescue funds must be obligated in the next several years, Shannon said, and the city must figure out some long-term ways to balance the budget if remote working is here to stay.

“ARPA revenue replacement funds must be used by 2024,” she said.

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