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September 17 , 2014

FINANCIAL STABILITY OF MUNICIPALITIES BROUGHT INTO QUESTION

 

As summer has almost officially ended and we roll into fall, that can only mean one thing: the General Elections are right around the corner following which the legislature will be to returning to the Ohio Statehouse to kick off the Lame Duck session. And as our municipal leaders are keenly aware, there are some significant issues that will impact the operation of Ohio’s municipalities waiting in the legislative wings.

With the anticipated return of the legislature to the Statehouse, there has been a good deal of discussion of the financial impacts realized on municipal and other local government budgets by the changes in state revenue sharing via cuts to the Local Government Fund, the Ohio Estate tax and other moves, reducing the amount of funding cities and villages can access to provide services.

In some quarters, the effects on municipal revenues have been significantly downplayed through rhetoric such as the cuts only represent less than 5% of the typical municipal operating budgets and that even with the cuts, cities and villages have been able to rebound from their economic losses, without state assistance. Other individuals and groups who have studied the consequences of the new state partnership by decreasing direct monetary support to local governments, have identified the challenges that the decreased revenues have presented to the ability of Ohio’s service providing municipalities to continue the level of services previously available before the cuts began in 2011.

What have also been considered in studying local budgets are the financial condition cities and villages were in before the worldwide economic recession began impacting local revenues beginning in 2007 and how those communities have been able or not been able to rebound to a more stable financial footing with the effects of the state cuts being part of the equation. There have been those that have looked at the differences between 2011 general revenue levels and have compared those figures to 2012 revenue numbers, in the attempt to make the case that cities and villages have not been adversely impacted by the state funding changes and, the argument goes on, that budgets are better off with in spite of the state cuts. This is nothing more than an exercise in intellectual dishonesty.

The league staff has spoken with municipal officials about these projections and how they are contrary to the fiscal reality so many hometowns across the state are facing. An honest analysis of the financial stability and health of municipal budgets can be determined by identifying the Total Gross Municipal Income Tax Receipts for each year (2007 through 2013) and then subtracting the total refunds issued for each year (2007 through 2013). By doing this simple exercise, the product results in the Total Net Municipal Tax Receipts for each year (2007 through 2013). When this comparison method is used, the results generate a true and accurate reflection of municipal revenue levels and what impacts have been felt within the identified timeframe.

The majority of municipalities that we have seen figures from who have used this calculation method show that revenues have not yet returned to the 2007, pre-recession amounts and cities and villages continue to struggle to meet the funding realities for service demands of their business and resident constituents. Some municipalities have been able to “weather the storm” and have been successful in stabilizing their budgets without seeking additional tax revenues to meet those marks. Other municipalities have only been able to replenish their financial resources to adequate levels by raising the rates taxpayers pay while the majority of hometowns try and make do with depleted financial reserves and hope for better days.

This conversation is not occurring in a vacuum and we are aware of organizations that are proponents of sub HB5, the deeply flawed municipal tax reform bill, whom are attempting to make the case that municipalities will and should weather the revenue cuts contained in the bill before the Ohio Senate since municipal revenues are so robust and there is plenty of fat that can be to trimmed in budgets for the sake of good business practices, like having a lower or no municipal tax obligation.

We feel it is vitally important for municipal officials, if they haven’t already done so, to pull out the revenue figures for the last seven budget years and determine your communities’ financial condition as it currently is, compared to when revenues were stable and much more predictable. Legislators will need this accurate and unbiased analysis as they consider anymore changes to state law that would impede the ability of municipalities to continue to be the economic engine that the state depends upon.

If you have these figures and comparisons compiled showing the true reflection of the current financial stability of your community, please forward those on to the league so we can continue to provide the most accurate information to legislators and other statewide policy makers.

 

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