COLUMBUS, Ohio — Cleveland would lose more than $2 million annually from the state’s local government fund under a provision in Gov. John Kasich’s budget proposal.
Cincinnati, Columbus, Dayton and Canton would also lose money under Kasich’s plan, which bases some funding on a jurisdiction’s ability to raise local revenues, according to estimates released this week by the Office of Budget and Management.
About 29 percent of villages, 21 percent of cities and 27 percent of townships would get less funding in 2019 than they will this year. Kasich’s proposal comes at a time when cities and counties say they still haven’t recovered from state cuts made six years ago. And it generally hurts cities that are employment centers while helping bedroom communities.
“It’s not fair. It’s just not fair,” Kent Scarrett, executive director of the Ohio Municipal League, said. “We’ve got a whole host of communities of every size, shape and geographic region who will get less state support because the state believes they haven’t raised their taxes enough.”
The state’s local government fund was established in 1934 in a deal with local governments to create the state sales tax. Communities use the money to pay for general expenses, from road repair to police departments.
Kasich has proposed changing how the state allocates the $368 million pot of money to base part on a government’s “capacity” to raise revenues through local taxes. The idea is money should be funneled to communities with greater need.
Ohio Budget Director Tim Keen said the current formula, which largely depends on county property valuation, is outdated. Keen said counties with high property value are generally wealthier.
“That means we have state tax dollars and we are distributing it to the wealthy through the local government fund — does that make sense?” Keen told reporters earlier this month.
Database: Here’s which Ohio cities, villages, townships would win or lose money under Gov. John Kasich’s budget
A cookie-cutter solution
The local government fund is a percentage of state general revenues, which largely come from income and sales taxes.
Scarrett said there have been no major complaints about the current funding method.
The complaint all local governments share, he said, is that the state halved the local government fund in 2011 to help patch an $8 billion budget hole. The fund went from taking 3.68 percent of the state’s general revenue fund in 2011 to 1.66 percent today.
At the same time, the state eliminated the estate tax and reimbursements for the previously eliminated tangible personal property tax were phased out.
Municipalities have asked lawmakers in the GOP-controlled General Assembly for years to restore funding to pre-2011 levels, without success.
Scarrett said if policymakers want to help communities by targeting state dollars, they should create a new, supplemental funding stream instead of punishing governments still recovering from the recession, state cuts and elimination of the estate tax. Scarrett said the effort could be funded by interest earned by the state’s rainy day fund.
“This cookie cutter approach doesn’t work,” Scarrett said.
A tale of two cities
Keen told lawmakers this month they should support the new formula if they represent areas that have been economically challenged. Keen said the new formula would direct money — a relatively small amount — to entities who need help delivering basic services instead of sending it to governments that don’t need much assistance.
There are several instances where wealthier cities, such as Beachwood, get less from the formula and Maple Heights, which was placed on fiscal emergency in 2015, gets more.
But the intricacies of the formula generate results that don’t fit the narrative.
For example, Bay Village, a Cuyahoga County city with an affluent population, would get more money while impoverished East Cleveland would lose funding. The calculation is based solely on municipal tax revenue. Bay Village is a bedroom community with almost no commercial base.
A cleveland.com analysis found cities where people work tend to be hurt the most by the formula, while largely residential areas would gain.
Cleveland cuts
Mayor Frank Jackson raised concerns about the idea a few weeks ago during an interview with cleveland.com. In a statement Thursday, Jackson again questioned the idea of basing some funding on “need.”
“The state budget proposal is not based on who pays into the pot with an equitable redistribution back,” Jackson said. “They’re talking about a needs based approach without considering the needs of the residents here in Cleveland.”
Cleveland is projected to get $25.26 million from the fund this year. Under Kasich’s formula, the city would get $23.8 million next year and $23.2 million in 2019. The city increased its income tax to 2.5 percent this year in part to replace money lost from earlier state cuts.
What would change?
Current method: Most of the local government fund is funneled to counties to divide among political subdivisions.
The state directly gives a small amount (about $10 million a year) to cities. This supplemental amount dates back to 1972, when the state established the state income tax. Cities were concerned the state income tax would make it harder for them to raise municipal income taxes and the state agreed to provide some aid.
Kasich’s proposal: Fold that city-specific stream into the main pot.
In 2018, 95 percent of the money would be distributed through the counties as it is now. The remaining 5 percent would be divided based on “capacity” to generate tax revenue.
Capacity is calculated by dividing the revenue by the rate and then dividing it by population to get a per capita figure. Jurisdictions are then compared to the state average and each other and money is awarded proportionately.
The amount split using the new formula would increase to 10 percent of the fund In 2019 and 20 percent in 2020.
For each municipality, state calculations would be based on a different tax.
- Counties: 80 percent of the calculation is based on sales tax revenue and 20 percent is based on property tax revenue.
- Cities: income tax
- Villages with an income tax: income tax.
- Villages without an income tax: property tax.
- Townships: property tax.
Winners and losers
Here are the cities that would lose the most over two years, as a percentage of their current funding:
Moraine: -40.3 percent (-$48,040)
Independence: -40.2 percent (-$60,419)
Beachwood: -28.3 percent ( -$42,070)
Solon: -26.5 percent (-$63,587)
Dublin: -24.5 percent (-$85,814)
Here are the five largest losses, in straight dollars.
Cleveland: -$2,075,339
Cincinnati: -$1,235,175
Dayton: -$387,239
Columbus: -$308,853
Canton: -$88,320
Five largest gains as a percentage of 2017 funding:
New Carlisle: 171.5 percent ($43,808)
Pataskala: 161.8 percent ($76,327)
Union: 146.3 percent ($100,316)
Trotwood: 120.6 percent ($332,609)
Cheviot: 110.8 percent ($99,955)
Five biggest gains over two years:
Parma: $445,755
Toledo: $384,333
Trotwood: $332,609
Hamilton: $307,081
Lorain: $287,057
Read all 2017 Ohio budget coverage here
Our editors found this article on this site using Google and regenerated it for our readers.
