Disagreement among members of Shelby City Council regarding an ordinance designed to reduce the tax credit allowed for income tax paid to other municipalities came to a head on Monday evening, with council in agreement that a long-term solution should be discussed.
“This is not the total solution,” said Councilmember Pat Carlisle. “This is step number one; there are steps two, three four and five – there have to be. This council is going to have to deal with the tax credit one way or another.”
Carlisle along with Councilmember Steve Schag sponsored Ordinance 22-2014, which states that only for the tax year 2015, the credit shall not exceed 75 percent of the tax assessed. 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. The revenue generated would not apply to the city’s General Fund until 2016.
The ordinance comes as one solution to the city’s dwindling General Fund, which as of Nov. 17 had a cash balance of $259,688 with encumbrances of $118,153. As of Nov. 17 the projected year-end General Fund balance was $134,700 with encumbrances of $150,000 resulting in a negative balance of $15,300. At Monday’s meeting, Finance Director Bob Lafferty stated his ideal balance for the General Fund is $400,000.
“This ordinance would not bring income until 2016, but at least we would know the financial cavalry is coming to bring some aid,” said Schag. “Looking at those figures we know 2015 is going to be a very challenging year for the city’s General Fund. This piece of legislation is not the solution, but I think it is part of the solution – enlisting the help of our friends and neighbors to lift this load at least for this one-year time period.”
The consequences of Shelby’s dwindling General Fund were brought to the forefront when Shelby Police Chief Charlie Roub articulated the losses the police department would suffer should the financial crisis continue. Roub noted the idea of reducing and/or eliminating the tax credit for Shelby residents who work outside the city is not a new one.
“Five years ago I sat in council chambers and witnessed a presentation made by the Fraternal Order of Police president and a representative of the International Association of Firefighters; as part of that presentation we reiterated facts and projections made by the finance director,” said Roub. “Cuts were being made in local government funding and we all knew they would continue. In an effort to stay ahead of those cuts, council at that time passed legislation to eliminate the tax credit given to those who work outside of the city of Shelby.
“Not too many weeks later with the installation of the new council the ordinance eliminating the credit was repealed contrary to the facts that had been presented to the council before then – facts that we know now were very much in evidence,” Roub continued. “There was much talk at that time about how fair it was to have to pay taxes to multiple jurisdictions and it was an unfair burden to the people who work outside of our community. There had been talk about finding a solution to the shortage of revenue we now have. That shortage has reached a critical level, and at this point no action has been taken.”
Roub stated currently the police department works at a minimum staff level of two officers more often than not, despite receiving more than 12,000 calls to date in 2014. Future vacancies in created in safety forces will also not be filled, including the retirement of Fire Chief Scott Hartman – and in March, the retirement of Roub himself.
“I will tell you right now I am going to retire on March 7, 2015 – you can consider that my official notice,” said Roub.
With Roub’s pending retirement and the potential retirement of one other officer in May or June of 2015, the police department would be forced to eliminate two newly-created programs: the placement of a School Resource Officer at Pioneer Career and Technology Center, and the addition of a Shelby police officer to the METRICH staff.
“Upon my retirement the officer at METRICH will be brought back into staffing and drug investigations will slow dramatically,” said Roub. “Should the other officer retire then the School Resource Officer will be eliminated along with the 75 percent of wages and benefits we get for him in that program. I can also tell you any further reduction in staffing from those levels will result in the jail being closed.”
Roub stated it is his opinion that the tax credit should be eliminated in its entirety.
“Some will say it’s not fair to pay taxes in two jurisdictions and I know there are members of council that agree,” he said. “I believe the opposite is true. Is it fair that 60 percent of the taxpayers that live in Shelby and work elsewhere pay zero percent income tax to support the services they receive? What I think is unfair is that 40 percent of the taxpayers are paying a whole bill.
“If the legislation of five years ago had been left standing we wouldn’t have this problem today,” Roub continued. “Resolve this issue the simplest, most fair way there is by eliminating the tax credit and we won’t be looking for band-aids for years to come.”
Roub’s comments spurred council to discuss not just the passing of the ordinance’s second reading, but to consider other options to sustain the General Fund.
“We need to look more comprehensively,” said Councilmember Garland Gates. “It is beyond my comprehension why the taxpayers in this community continue to subsidize the townships to the tune of about $24,600 per year. Also look at transferring money from a flush account to a desperate account – it’s not recommended or advisable, but it is a tool we have available to us.”
Councilmember Harold Shasky, who voted against the second reading of the ordinance, also suggested transferring money from a flush account. He pointed out Shelby would fall in the middle range compared to surrounding cities if given a 75 percent tax credit – some cities have a zero percent credit, others have a 100 percent credit. Shelby Mayor Marilyn John pointed out the city of Ontario also adjusted their tax credit for a period of three years while going through some financial issues.
“If other communities can do it without taking away the tax credit from its citizens there’s got to be a way we can also do it,” said Shasky.
Councilmember Nathan Martin also voted against the second reading of the ordinance, citing the need for long-term solutions to the General Fund problem.
“If we’re serious about tackling this problem, it is a half measure at best,” said Martin. “I’m disappointed that we haven’t had that long-term approach conversation sooner. We all on council knew this was coming. And now we’re in a position where here’s another band-aid for the situation. The citizens of Shelby deserve more than half measures.”
Ultimately the second reading of the ordinance passed with only Shasky and Martin dissenting, though council agreed deeper discussions would be had in the future.
“The question is going to be, are we going to head toward that zero percent or are we going to stay at the 100 percent at the risk of all the scenarios and all the losses and additional financial stress that we’re going to have that Chief Roub spoke about,” said Carlisle. “If this tax credit doesn’t get adjusted at some point in the near future, there are some reductions of services that are not going to be pleasant to take either. It is up to this council and the council that takes the seat in January 2016 to deal with this tax credit issue and to look at it from an open mind.”
Five years ago, said Chief Roub, “There had been talk about finding a solution to the shortage of revenue we now have. That shortage has reached a critical level, and at this point no action has been taken.”
