- The tangible personal property tax can trace it roots back to 1846 when the state chose to tax all property. In 1931, the legislature limited the tax to machinery, inventory, furniture, fixtures and other equipment used to conduct business. In 2005, the legislature decided to phase out the tax over five years. At the time, only 13 states still had such a tax. The tax brought in $1.35 billion in 2006, the majority of which went to school districts with the still substantial remainder going to localities.
- The estate tax dates back to 1893 when the legislature enacted an inheritance tax that was paid those who inherited. In 1968, the legislature replaced the inheritance tax with the estate tax, which is paid by the estate. The tax applied only to those estates with a net taxable value more than $338,333. Those estates were taxed at 6 percent. Estates of net taxable value of more than $500,000 were taxed a 7 percent rate. Last year, the legislature voted to eliminate the tax on Jan. 1. Many estates from those who died in 2012 still are in probate and the localities are receiving the taxes from those estates this year as they clear probate.
- The utility consumption tax was created in 2001 to help offset some losses to localities from some tangible personal property tax exemptions. Throughout the years, the legislature has tinkered with the distribution formula so that more and more of the money went into the state general fund. According to the Department of Taxation, in 2009 $136 million went to the state general fund and $63.2 million went to local governments. By 2012 $294.8 million went back to the state and only $16.1 million went to the localities. Several of the localities surveyed by the DDN included the utility consumption tax in their income tax receipts and did not produce figures for those tax receipts.
A survey of more than 20 localities by the Dayton Daily News found they expect to lose more than $28 million in state aid this year compared to what they received in 2009 because of cuts in funding and the phasing out of three taxes.
As a result, cities such as Trotwood have furloughed workers; Springfield cut 32 positions; Troy cut back street resurfacing and Kettering delayed capital improvement projects, dipping into its reserves to fund the projects it deemed a priority.
State leaders say the reduction of the Local Government Fund, the phasing out of the Tangible Personal Property Tax and the Utility Consumption Tax, and the elimination this year of the Estate Tax all were necessary to balance the state budget and to make Ohio “more business-friendly” to spur economic development and create more jobs.
“In my role, I believe the reductions, at times, were excessive,” Beavercreek City Manager Mike Cornell said. The city saw a 70 percent reduction from what it received in 2009 to what it budgeted this year — a loss of nearly $1.6 million.
Howard Fleeter, a former Ohio State University professor of public policy and economist who has tracked the state’s funding of localities and school districts for nearly three decades gave credit to the governor’s administration for taking steps to balance the budget.
“The Kasich administration deserves credit for getting the state budget into structural balance,” Fleeter said “But there can be a spirited debate as to how they went about it.”
That debate centers on a difference in tax philosophies. On one side are those who believe the state does not have a role in funding local government. On the other, there are those who believe that local taxpayers send plenty of money to Columbus and some of it should come back, according to Fleeter.
“It’s understandable that the state needed to stabilize its finances. Still that doesn’t help the localities,” Fleeter said.
Tightening the belt
To make up for the lost revenues, local governments have followed a similar path: freeze hiring, push back maintenance, postpone capital improvements and reduce the work force through attrition.
The effect in Beavercreek has been substantial, Cornell said. The city, which has no income tax, relies on state funding to run its administration and parks and recreation department. Property taxes fund the city's streets, its police department and fire protection from the Beavercreek Twp. Fire Department.
"The impact of these reductions to Beavercreek that has relied on state aid is significant," Cornell said. The city has reduced its work force from 152 full-time equivalents in 2007 to 129 this year. The city's five-year plan for infrastructure needs is $10 million. Those plans are on hold as council seeks a 1-mill renewal of an existing street levy, because of concern voters would reject any tax increase this year.
Dayton’s 2013 general fund budget is about the same as its 1997 budget, according to Stanley Earley, assistant city manager. The cuts and savings have come largely in three forms – staffing, innovation and fees.
During the span of a decade, the city has cut its payroll from 2,000 to 1,200 employees. On the innovation front, there have been small budget reductions such elimination of paper paychecks and a switch to voice-over-internet phone systems, as well as bigger changes like a renegotiated streetlight contract that should save millions, and the sale of unused city buildings.
Some of the money also has come out of residents’ pockets. Dayton eliminated a senior citizen property tax credit, saving about $400,000 per year, and ramped up enforcement of unpaid traffic and parking tickets, in part by towing offending vehicles.
Troy has cut or left vacant about 10 percent of its positions, cut back winter plowing and salting, and gotten agreements with employees on a single health care program, according to Patrick Titterington, director of public service and safety.
“It’s getting more and more challenging, and it shows most starkly in capital projects,” he said. The city needs $600,000 annually to keep up with road work. With dwindling revenues, the city approved a $10 per vehicle permissive tax that will raise $200,000 to $250,000 annually for city streets.
Tighten and Tax
Xenia was forced to lay off six police officers, six firefighters, close a fire station, eliminate the parks and recreation department, did away with administrative and clerical positions, and halt street resurfacing.
Just as the recession hit the state budget, so too did it lay waste to Xenia’s.
“We had over 400 of our residents out of work when GM closed. Another 600 lost their jobs when DHL closed down in Wilmington,” City Manager Jim Percival said. “It had a pretty dramatic effect on our revenues.”
The state cuts didn’t help.
Rather than see city services cut any further, “our citizens stepped up in 2010 and passed a half-percent income tax increase,” Percival said. Half of the increase went to the fire department to rehire the police and firefighters, and re-opened the fire station. The other half went to streets and capital improvement.
“We kept our word and now we have a robust street resurfacing program,” Percival said.
For Oakwood, the biggest hit was the loss of the estate tax. From 2009 through 2012, the city averaged more than $1.1 million annually. Historically, the city had been averaging between $2 million and $3 million annually, according to City Manager Norbert Klopsch — a big hit to a $12 million operating budget.
“We spent most of last year talking with our citizens, and what we heard is they loved Oakwood as it was. They told us to become more efficient rather than cut any services,” he said.
The city reduced through attrition its work force from 95 to 85. It cut back yard waste pickup from once every other week to once a month and pared down its spending for a fifth consecutive year.
In May, voters approved an additional 3.75 mill property tax, the first millage increase since 1992, according to the city manager.
“There has been a monumental tax shift at the state level,” Klopsch said. “They are closing the spigot, and the money is being kept in Columbus. That is forcing local governments to make tough decisions.”
Making choices
Kettering has reduced its general fund spending for the past decade. The loss of the estate tax, however, “hurt us the most,” City Manager Mark W. Schwieterman said. The city has been attacking its capital needs, “everything that involves orange barrels,” using the estate tax, he said. One such project was last year’s repaving of Wilmington Avenue.
Now some of those projects will be delayed with the loss of the estate tax.
“Some service levels may change to provide for vital capital improvements. We’re managing that right now,” he said.
Springboro leaders took action early .
“Frankly, the state has been telling us for years it was going to happen,” City Manager Christine Thompson said. “We’ve been projecting downward revenues for 10 years.
“Still we all feel these cuts, but ours were anticipated.”
About the Author