July 31, 2010
TAXING OTHER CITIES: Moody’s Finds Recession Impacted Columbus Earning Tax
By Tony Rutherford
Huntingtonnews.net Reporter
Huntington, WV (HNN) – Huntington’s proposed Occupation Tax, which is a part of a three prong tax reform effort should not be seen as a magic wand to lift the city into luster.
The Occupation Tax component of the reform package is not immune from recessions. One of the reasons the city looks at the tax reforms comes from large drops in the business B &O taxes from new construction and a dip in employment which meant that the user fee totals dropped.
Since the Occupation and Sale Tax packages would generate funds for the city, any package that received council approval must still gain a thumbs up from the state's Municipal Home Rule Board. It will likely face one or more court challenges, since it would be the first occupation tax in the Mountain State.
Columbus, Ohio, like most municipalities in Ohio has a city income tax, which is a variation of the "occupation tax."
As an example of the instability in city taxes related to “earnings” or “incomes, ” Moody’s Investment Service analysis of Columbus dated October 22, 2009 listed strengths and weaknesses for the city’s proposed ½% income tax rate increase.
Based on the October 22, 2009 opinion, the Moody's Investment Service granted the city an Aaa rating and concluded that it has a “large and diverse economy that benefits from large stabilizing institutions … and satisfactory financial operations supported by ample alternate liquidity and prudent fiscal policies and management.”
Moody’s made the analysis based on Columbus planning to increase its income tax from 2% to 2 ½% “to stabilize finances for the long term.”
However, the city income tax has its challenges per Moody’s, which identifies it as one of the uncertain components that stabilize the Columbus economy.
CHALLENGES
The city’s income tax revenues “cycle with economic conditions. Notably illustrated by income tax shortfalls in FY 2008 and continuing into FY2009 that required significant use of the city’s General Fund balances.” These reverses in city income tax revenue could result in “a fundamental decline in the income tax base, particularly if recovery from the recession lags expectations.”
Comparing Huntington to Columbus might be an apple to a diamond financially. Unlike Columbus which has enjoyed population increases, Huntington (and surrounding counties) has either lost population or remained stable.
But the analysis indicated a dependence on “stable employment environment, anchored by the local, state and federal governments’ operations , along with sizable university and health care sectors. The diversity and stability of employers in the region are important as the city’s primary revenue source comes from an income tax levied on all who work and reside in the city, although a full credit is granted for any income taxes paid to another municipality.” http://auditor.ci.columbus.oh.us/uploadedFiles/Moodys_Oct09.pdf
HISTORIC
Columbus, according to Moody’s, has demonstrated healthy financial position by “adherence to prudent fiscal policies and practices” through previous responses that brought recovery from economic downturns.
“The city recorded sizable operating deficits in FY 2001 through FY 2003,” which the investment firm attributed to “lower than expected municipal income taxes and reduced state shared revenues.”
Columbus continued its “structurally imbalanced” operating budget, but boosted revenue through one-time deferred lease payments from the Solid Waste Authority of Central Ohio to the General Fund Reserve. Moody’s continued that about $66.6 million in FY 2004 and 2006 went into a Budget Stabilization Fund. The city also adopted a policy to “maintain this reserve” as at least 5% of the city budget.
Ohio’s capital city had to dip into its contingency reserves following the start of the recession due to a shortfall in municipal income tax revenue which in Fiscal 2007 had been budgeted for a 3.5% growth. Instead, collections fell by 0.5% , resulting in an $18 million shortfall in revenue.
Voters in August 2009 approved “by a comfortable margin” a “notable 25%” increase over the existing income tax rate, following a “thorough deliberation” over level of services and infrastructure the city wanted to maintain in the long term.
The report warned that a “prolonged recession” would “further erode” the city income tax base. In addition , Columbus must continue restoring reserves and not relax “prudent fiscal policies and practices.”
Share This Story:
Make HNN Your Homepage (IE Users Only)
TAXING OTHER CITIES: Moody’s Finds Recession Impacted Columbus Earning Tax
By Tony Rutherford
Huntingtonnews.net Reporter
Huntington, WV (HNN) – Huntington’s proposed Occupation Tax, which is a part of a three prong tax reform effort should not be seen as a magic wand to lift the city into luster.
The Occupation Tax component of the reform package is not immune from recessions. One of the reasons the city looks at the tax reforms comes from large drops in the business B &O taxes from new construction and a dip in employment which meant that the user fee totals dropped.
Since the Occupation and Sale Tax packages would generate funds for the city, any package that received council approval must still gain a thumbs up from the state's Municipal Home Rule Board. It will likely face one or more court challenges, since it would be the first occupation tax in the Mountain State.
Columbus, Ohio, like most municipalities in Ohio has a city income tax, which is a variation of the "occupation tax."
As an example of the instability in city taxes related to “earnings” or “incomes, ” Moody’s Investment Service analysis of Columbus dated October 22, 2009 listed strengths and weaknesses for the city’s proposed ½% income tax rate increase.
Based on the October 22, 2009 opinion, the Moody's Investment Service granted the city an Aaa rating and concluded that it has a “large and diverse economy that benefits from large stabilizing institutions … and satisfactory financial operations supported by ample alternate liquidity and prudent fiscal policies and management.”
Moody’s made the analysis based on Columbus planning to increase its income tax from 2% to 2 ½% “to stabilize finances for the long term.”
However, the city income tax has its challenges per Moody’s, which identifies it as one of the uncertain components that stabilize the Columbus economy.
CHALLENGES
The city’s income tax revenues “cycle with economic conditions. Notably illustrated by income tax shortfalls in FY 2008 and continuing into FY2009 that required significant use of the city’s General Fund balances.” These reverses in city income tax revenue could result in “a fundamental decline in the income tax base, particularly if recovery from the recession lags expectations.”
Comparing Huntington to Columbus might be an apple to a diamond financially. Unlike Columbus which has enjoyed population increases, Huntington (and surrounding counties) has either lost population or remained stable.
But the analysis indicated a dependence on “stable employment environment, anchored by the local, state and federal governments’ operations , along with sizable university and health care sectors. The diversity and stability of employers in the region are important as the city’s primary revenue source comes from an income tax levied on all who work and reside in the city, although a full credit is granted for any income taxes paid to another municipality.” http://auditor.ci.columbus.oh.us/uploadedFiles/Moodys_Oct09.pdf
HISTORIC
Columbus, according to Moody’s, has demonstrated healthy financial position by “adherence to prudent fiscal policies and practices” through previous responses that brought recovery from economic downturns.
“The city recorded sizable operating deficits in FY 2001 through FY 2003,” which the investment firm attributed to “lower than expected municipal income taxes and reduced state shared revenues.”
Columbus continued its “structurally imbalanced” operating budget, but boosted revenue through one-time deferred lease payments from the Solid Waste Authority of Central Ohio to the General Fund Reserve. Moody’s continued that about $66.6 million in FY 2004 and 2006 went into a Budget Stabilization Fund. The city also adopted a policy to “maintain this reserve” as at least 5% of the city budget.
Ohio’s capital city had to dip into its contingency reserves following the start of the recession due to a shortfall in municipal income tax revenue which in Fiscal 2007 had been budgeted for a 3.5% growth. Instead, collections fell by 0.5% , resulting in an $18 million shortfall in revenue.
Voters in August 2009 approved “by a comfortable margin” a “notable 25%” increase over the existing income tax rate, following a “thorough deliberation” over level of services and infrastructure the city wanted to maintain in the long term.
The report warned that a “prolonged recession” would “further erode” the city income tax base. In addition , Columbus must continue restoring reserves and not relax “prudent fiscal policies and practices.”
Share This Story:
Make HNN Your Homepage (IE Users Only)
