SHELBY, Ohio–During their meeting on Monday, Dec. 15, Shelby City Council passed an ordinance designed to reduce the tax credit allowed for income tax paid to other municipalities – the latest of many proposed measures in the past year to increase the city’s General Fund.
Currently, Shelby residents who live and work inside the city of Shelby as well as non-residents employed in Shelby pay the city’s full income tax rate of 1.5 percent. Shelby residents who work outside the city receive a 100 percent tax credit on the base 1 percent income tax, assuming those residents also pay income taxes to the city or municipality in which they work.
That credit changed as of Monday evening with the unanimous passage of Ordinance 22-2014.
The ordinance states that the credit shall not exceed 67 percent of the tax assessed from the year 2015 forward, and amends Section 880.10 (credit for tax paid to other municipalities) of Chapter 880 (earned income tax) of the Codified Ordinances of the city of Shelby. Councilmembers Pat Carlisle and Steve Schag sponsored the ordinance.
“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 on Nov. 17. If passed, the effects of the ordinance on the General Fund would not take place until 2015.
The city of Shelby’s General Fund has experienced a steady decline since 2007, compounded by the decrease or elimination of the Commercial Activity Tax (CAT), Estate Tax, and Local Government Funds from the state of Ohio. According to Councilmember Garland Gates, Shelby lost $300,000 in Local Government Funds and $200,000 in Estate Taxes.
“For reasons unknown to me, we have a governor and a legislature that are waging economic wars on local governments in Ohio,” said Gates. “This is not the situation just in Shelby.”
Since its introduction at the Nov. 17 meeting, Ordinance 22-2014 has been heavily discussed among members of council. The ordinance passed its first reading 4-1 on Nov. 17 with only Gates voting no, and its second reading passed 3-2 on Dec. 1 with Councilmembers Harold Shasky and Nathan Martin voting no.
“I’ve always opposed altering the credit, but voted ‘yea’ on the second reading,” said Gates. “It’s important to me that we maintain, to the greatest extent that we can, our safety forces in this community. We do not have an overly large police or fire department and it’s important for the safety of our community.”
This is not the first time reducing the tax credit has been discussed. According to Shelby Police Chief Charlie Roub, five years ago council passed legislation to eliminate the tax credit given to residents who work outside of Shelby. At the installation of a new council a few weeks later, that ordinance eliminating the tax credit was repealed. At the Dec. 1 council meeting, Roub stated he was in favor of eliminating the tax credit.
“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 that they receive? What I think is unfair is that 40 percent of the taxpayers are paying the whole bill,” said Roub on Dec. 1.
At the Feb. 18 city council meeting, Carlisle sponsored a similar Ordinance 4-2014, which would decrease the tax credit over the following years: Shelby residents who live in the city and work out of Shelby would earn a 67 percent tax credit for 2014, a 33 percent tax credit for 2015, and a zero percent tax credit for 2016. The ordinance was met with public backlash.
“I drive 75 minutes one-way to a job because quite frankly, there are no opportunities here,” said Shelby resident Edwin Tharp at the March 3 meeting. “I’m a working professional and I can’t find good employment here. I can’t afford to go down the road and make $9 an hour and make it. And now you’re going to double tax me? I don’t understand it.”
During the Feb. 18 meeting, council voted to discuss the ordinance further at the March 7 budget meeting. The ordinance did not appear on council agenda again after the Feb. 18 meeting.
At council’s April 21 meeting, Martin sponsored another income tax Ordinance 9-2014 that would have placed on the November ballot the issue of whether to put in place a residency tax credit and an additional income tax. The ballot issue would have increased the general income tax payable to the city by 0.5 percent. It also would have created a residency credit of 0.5 percent for individuals and businesses within the city of Shelby – the actual tax increase for Shelby residents would have been zero. Non-resident workers would have paid, on average, $7.19 more per month.
“For those who benefit from the well-paying jobs in our community but who choose not to live within our community, we must ask them to carry their fair share of these premium services which result in their employment,” said Martin on April 21.
Martin’s ordinance was also met with public backlash. After holding a town hall meeting on Monday, April 28, Martin during the May 5 meeting said he’d heard from many business owners who felt the tax would affect their ability to hire, and non-resident business owners who felt the tax would impede their ability to do business in the city of Shelby. Ordinance 9-2014 passed its first reading on April 21. At the May 5 meeting, council voted to commit the ordinance to the Finance/Personnel Committee. The ordinance did not appear on council agenda again after the May 5 meeting.
Carlisle again sponsored Ordinance 12-2014, introduced at the May 5 meeting, which would introduce a 0.2 percent income tax levy for three years for the purpose of maintaining safety forces in the city of Shelby. A 0.2 percent income tax would have produced approximately $435,000 annually that would be expended specifically for Police and Fire Department line items from the General Fund. Council approved the tax levy to the ballot at their June 2 meeting, but Shelby voters failed the levy in November by a 59.09/40.91 percent margin.
Ordinance 22-2014 is not the only solution that has been considered by councilmembers for the sake of the General Fund, and more proposals are coming for the future. According to Carlisle, there is a request for additional legislation concerning the General Fund that all five members of council have indicated they will sponsor. Gates stated there is legislation proposed that transfers a quarter of a million dollars from the Light Debt Reserve Fund to the General Fund.
“The Light Debt Reserve Fund is an inactive fund established back in the 1940s when the city had issued bonds for improvements at the light plant,” Gates explained. “One of the requirements was money be set aside kind of like insurance. If there were not enough monies collected through light bills, they had the reserve fund.”
At present, the Light Debt Reserve Fund holds half a million dollars, and the proposed legislation would move $250,000 to the General Fund. Gates noted he first suggested this measure a year ago.
“I’ll be the first to admit that’s only a stop-gap, but we’ve got issues here that the administration spent the General Fund into the red as of last year, and we’re looking at that again.”
Gates also suggested that the city of Shelby create its own township – currently people living within Shelby’s city limits pay a township real estate tax to Jackson, Sharon, Plymouth and Cass townships.
“The people of Shelby receive no services for that,” said Gates. “Most cities in our area years ago created their own township, the city of Shelby never did that so this is why people for all these years have continued to subsidize the townships. It’s a small tax and that total that leaves the city limits is less than $25,000 but we’re in a situation where we can’t ‘poo-poo’ even that small amount. It’s a subsidy that makes no sense to me. That’s something we need to look at.”
As of Nov. 17, the city of Shelby’s General Fund 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. As Councilmember Schag stated on Dec. 1, “2015 is going to be a very challenging year for the city’s General Fund.”
“2015 is going to be a very challenging year for the city’s General Fund,” stated Steve Schag at Shelby City Council’s December 1 meeting.
Story updated to include actions of Shelby City Council on Monday, Dec. 15. Full update Tuesday.
