In a continued effort to sustain the city’s General Fund, Shelby City Council passed the first reading of an ordinance designed to reduce the tax credit allowed for income tax paid to other municipalities, affecting Shelby residents who work outside the city limits. However, some members of council were skeptical about advancing the ordinance in the future.
Councilmembers Pat Carlisle and Steve Schag sponsored Ordinance 22-2014 that would amend credit for taxes paid to other municipalities. The ordinance states that only for the tax year 2015, the credit shall not exceed 75 percent of the tax assessed on income, wages, salaries, commissions or other compensation earned in other municipalities. Currently the credit is 100 percent.
“The legislation before you is being presented as a possible way to bring some help to the city’s General Fund for a temporary, one-year adjustment to the income tax forgiveness rate,” explained Schag.
Currently residents who live and work inside the city of Shelby as well as non-residents employed in the city pay the current full income tax rate of 1.5 percent, and residents who work outside the city receive a 100 percent tax credit on the base 1 percent income tax. Reducing the tax credit to 75 percent would generate approximately $121,000 annually.
“As such, that one percent is the major source of revenue to the General Fund and we have residents who are not contributing to that particular one percent because they work outside the city, which I understand, a lot of conversation goes on about why people work outside the city,” said Carlisle. “We are having issues keeping this sustainable and keeping it at the level it needs to be.”
Carlisle reported at Monday night’s meeting that the General Fund has a current balance of $259,688. The projected 2014 year-end General Fund balance is $134,700 with encumbrances of $150,000, resulting in a negative balance of $15,300.
Schag pointed out the city is experiencing an upswing in total income tax receipts, with total income tax receipts for 2014 year-to-date up from last year by 12.14 percent. He also noted expenditures for 2014 are expected to be down.
“However, in 2014 we took action to relieve the pressure on the General Fund that most likely cannot be repeated in 2015,” said Schag. “Between capital improvement fund deferments, a one-time insurance premium moratorium, and the unique workers compensation rebate, we produced a positive $210,000 net effect for our General Fund. It is highly unlikely these measures can be repeated again.”
Carlisle also noted income tax levies approved by Shelby voters for the construction of the Shelby Justice Center and the maintenance of streets, alleys and sidewalks were not subjected to a tax credit. At the Nov. 4 election Shelby citizens voted against a 0.2 percent income tax levy for three years for the purpose of maintaining safety forces, specifically for fire and police department line items. The two departments are paid out of the city’s General Fund and represent 86 percent of the total General Fund expenditures.
Unofficial election results indicated the levy failed by a 59.09/40.91 percent margin.
Councilmembers Nathan Martin and Harold Shasky stated they would support the first reading of the ordinance, but would like to receive feedback from the constituents in their respective wards before proceeding further. Martin noted even with the passage of the ordinance, nothing could be done regarding revenues that would take effect in 2015.
“This and other measures would be looking forward, so we are going to have to look on the expenditure side to try to help out our fiscal situation, there’s no other way around that,” said Martin. “I do appreciate the short-term aspect of this, but again if we were going to do a temporary fix, I would hope that we also come together for some long-term approaches that are going to help solve this.”
Shelby’s General Fund has experienced a steady decline since 2007 due to decreases or elimination of the Commercial Activity Tax (CAT), Estate Tax, and Local Government Funds from the state of Ohio.
“I’m having a difficult time trying to figure out how we can maintain the current level of services we’ve enjoyed for years with General Funds that have been diminished by elements out of our control,” said Schag. “We are facing some difficult days ahead in 2015, and it is my desire and the desire of this administration and this council to provide the very best of municipal services to all the citizens of Shelby.”
