Governor’s budget includes pitfalls

By Mike Barhorst - Contributing columnist

Ohio Governor John Kasich recently unveiled his 2018-19 Budget. The 3,512 page document includes a number of provisions which will further harm municipalities. One of those provisions is the centralized collection of taxes.

For many years, local municipalities, including Sidney, have opposed attempts by our state government to take over the collection of the municipal income tax. These attempts have thus far been unsuccessful, but are alarming nonetheless, especially in light of the fact that the State has engaged in other practices that have been particularly injurious to municipalities and other local governmental units, including townships and counties.

As I have written previously, the state slashed the local government fund, eliminated the estate tax, and eliminated the tangible personal property tax, the effects of which continue to burden local governments. Before the Great Recession (2007), the city’s income tax accounted for 61 percent of total general fund revenues. This year, that percentage is projected to be 73 percent.

As a result of the state’s actions, the city of Sidney is now more dependent than ever upon its municipal income tax to provide the revenue to pay for vital city services, including police protection, fire and emergency services, the resurfacing of roads, the replacement of bridges, critical infrastructure improvements, economic development, and public recreation.

Centralized tax collection, as proposed by the governor, is contradictory to the idea of smaller government. In addition, it is yet another challenge to the home rule powers granted to local municipalities by the Ohio Constitution. In plain language, it is simply a bad idea!

The governor’s most recent proposal requires the centralized collection of the portion of local taxes paid by Sidney’s businesses based on their net profits. At this point, centralized collections would not extend to taxes withheld by employers. However, it is strongly believed that should the State become successful with this encroachment, the collection of the remainder of municipal tax receipts (including special tax levies, including Sidney’s street levy) is at risk.

This past year (2016), this would have would have meant that 26 percent, or approximately $5.1 million of the $19.8 million in taxes collected by the city would have been first been received by the state and then later distributed to Sidney. Although the state has previously estimated that the cost, passed on to municipalities to collect taxes on our behalf, have ranged from 3 to 6 percent, the current proposal pegs the initial fee at 1 percent.

Finance Officer Ginger Adams has calculated that based upon the past year’s results, this would have resulted in a loss of approximately $51,000 in revenue for the city. It is expected that the amount retained by the state would quickly increase with their realization that the 1 percent fee would not cover the state’s cost to collect the tax.

The actual receipt of tax revenues collected by the state and returned to municipalities could potentially lag several quarters behind. This has certainly been the case with other tax monies collected by the state. Especially if the state’s own budget is tight, the State Controlling Board has demonstrated a reluctance to let go of money that rightfully belongs to other entities, in some instances, keeping those funds on deposit in Columbus for months.

Delays in receiving receipts could dramatically impact Sidney’s cash flow making it necessary to secure expensive, short-term funding options such as loans to meet immediate cash flow needs. Currently, income tax receipts collected locally are deposited on a daily basis and as a result, are readily available for local needs.

Another area of great concern is the state’s lack of resources to appropriately audit Sidney’s income tax

returns and pursue non-compliant and delinquent taxpayers. These tasks are best handled at the local level for any number of reason. Business net profits returns are generally more complex and require knowledge of Federal tax laws. For those reasons, our Income Tax Administrator audits all business returns. Our Assistant Finance Officer performs a final review. The process ensures that all applicable deductions are supported and that all taxpayers are paying their fair share.

There are no assurances that the state would audit returns in the same thorough fashion. In fact, the governor’s fact sheet stated that they would “audit returns when appropriate.” As a Council member appropriately remarked during the Feb. 13 meeting, “this could mean never.”

Finally, the Governor’s proposal would require all businesses to file and pay their municipal income tax electronically through the Ohio Business Gateway (OBG). The OBG has been available to local businesses for many years. Very few opt to use the system. The OBG is known for having significant programming and software flaws and has been severely underfunded for a number of state budget cycles. The state of Ohio should take steps to improve the OBG portal as a solution for Ohio businesses to remit payments and filing information directly to municipalities, and not to the Ohio Department of Taxation for processing.

Staff at the Ohio Municipal League, an Ohio non-profit corporation organized to serve the interests of Ohio municipal government, continues to review the 3,512 page proposed state operating budget. City Manager Mark Cundiff likened the process to “cleaning a cat’s litter box — you never know when you were going to find another surprise.”

To express their strong opposition to the governor’s proposal, City Council adopted Resolution 14-17 at its Feb. 13, 2017, meeting. In addition, I have personally written to Governor Kasich, State Senator Matt Huffman and State Representative Nino Vitale expressing Council’s concerns. I urge you to also contact Governor Kasich, State Senator Matt Huffman and State Representative Nino Vitale to let them know that “local means local” and collection of income taxes is best handled at the appropriate local level.

By Mike Barhorst

Contributing columnist

The writer is the mayor of Sidney.

The writer is the mayor of Sidney.