By Sue Botos
City officials have been discussing the possibility of placing a 0.5-percent income tax increase on the November ballot for months, but at a recent committee session, Mayor Pam Bobst gave the go-ahead for City Council to begin the formal process.
“This is the most difficult decision I have ever made. No one wants to propose a tax increase, but sometimes the truth is difficult to hear,” she told council.
“This is not a surprise,” she noted, pointing out that this was the city’s “last reaction” to the economic downturn after spending several months studying projections and weighing options.
As a result of this research, Bobst and finance Director Michael Thomas recommended a 0.5-percent income tax increase, plus a 0.5-percent raise in tax credit for those working outside of the city. The measure will place the city tax rate at 2 percent and will amount to $2 million in additional revenue. This 2-percent rate will place the city with the majority of Cuyahoga County municipalities.
Giving a brief history of city income tax, Bobst noted that the last hike was in 1977, when voters approved, in a special election, a raise of 0.5 percent, making the current rate 1.5 percent. She said this rate has served the city well for more than 30 years, and that for the first five months of 2013, financial projections are 3 percent higher than last year’s.
Bobst gave a synopsis of her state of the city address, which detailed the city’s reactions to the economic recession beginning in 2008, which included employee furloughs, wage freezes and cutbacks on capital improvement projects. As an example, she said that $1 million used to be set aside yearly for road paving. Now, paving is only done when necessary.
She said that the recent $3 million in state cuts, including the elimination of the estate tax, was “the tipping point” when it came to making the tax hike decision. Coupled with demands from the state and federal EPA, Bobst said the city has “learned the importance of shared sacrifice.”
In addition, Bobst said the city is carefully monitoring the progress of HB 5, the so-called tax standardization legislation now making its way through the state legislature. “We believe in uniformity, but this must be revenue-neutral,” she said, adding that in its current form, the bill, which affects municipal income tax, would cost the city about $553,000.
“We’re proud of what we have accomplished. These are not stumbling blocks but stepping stones,” Bobst said of the recent budget trimming, which began in earnest in 2008. In that year, Bobst stated that the city’s general-fund budget stood at $25 million. The projected number so far for this year is $19 million.
Working with the Central Collection Agency, Bobst said that the 0.5-percent increase to the income tax and accompanying credit was the best of three options offered. The tax hike will net $236,155 for the city, approximately the same amount once generated by the estate tax.
Bobst again stressed, as she has in the past, that the funds generated will be used strictly for capital improvements. “This lifts the pressure off of the general fund,” she pointed out, adding that it’s a fair allocation of costs to all residents and helps to meet the capital needs of the city.
Above all, Bobst said that it will be up to the residents whether or not the income tax hike is a go. “I have a good deal of faith in our residents that they will make the appropriate decision for the community,” she said.
Council is expected to act on the legislation to place the issue on the November ballot before its August recess.