Voters to decide on quarter percent jump
by Jeff Saunders
Reporter
Macedonia -- Voters will decide in November whether they will agree to a temporary city income tax rate increase from 2 percent to 2.25 percent.
City Council voted 4-2 July 22 to place the increase on the Nov. 2 ballot. The issue includes a provision that the increase will expire at the end of 2013.
"Residents will either have to revote on this or we will have to find other means to fund the city," said Council President Dave Engle.
The city's income tax credit would remain at 2 percent, which Finance Director Loren Sengstock said means that all taxpayers would pay the quarter percent increase.
Council also unanimously approved placing the renewal of an existing 5.07-mill property tax levy on the ballot and voted down placing on the ballot a 4-mill replacement levy 5-1.
Brian Thunberg, an auditor with the Regional Income Tax Agency, which handles income tax collections for the city, told Council at a July 20 finance committee meeting that the income tax increase would bring in a projected $1.25 million annually in additional revenue.
Thunberg, however, also said that because of the way collections are made, the city is projected to receive only about $725,000 in 2011. Sengstock said the difference, about $520,000, would likely come in at the beginning of 2012. In the meantime, he said the city would have to supplement its budget next year with $500,000 in its emergency reserve fund.
"You'd probably have to, in that first year, pull down that emergency reserve, then build it back up," he said.
The renewal of the levy, which voters originally approved in 1962, would maintain an existing revenue stream of about $528,000 annually for another five years. Homeowners would continue paying $32.97 annually per $100,000 in market value on the levy.
City officials say the added income tax revenue is needed to prevent as much as $1.5 million in budget cuts next year that police, fire and service department heads say would result in devastating layoffs. Sengstock said that although the projected tax revenue increase falls short of what he projects the city will need, he is hoping it will be enough to avoid layoffs.
He added that the amount of additional revenue is difficult to predict because of the volatility of income taxes, but it will probably not be enough to restore nearly $1.1 million in cuts that went into effect in April.
"It will only hold us over until hopefully the economy improves," said Sengstock.
City officials say that the April cuts were the result of about $2 million in income tax losses since 2007.
The April cuts included the loss of three of the city's 23 police officers and all four part-time jailers, cuts in part-time firefighter hours which dropped shift staffing from five to four firefighters, and the layoffs of five part-time service department employees.
A ballot issue in May to replace the existing levy with a 4-mill replacement levy lost by 33 votes.
That replacement would have generated an estimated $1.41 million in additional revenue, annually and would have cost homeowners about $89.50 in additional property taxes annually per $100,000 in market value.
Engle and Councilor Shane Barker said they believe that the income tax increase will be easier on those who are having the hardest time.
"It does not penalize those who are laid off, it does not penalize those who are on fixed incomes," said Engle.
Councilor Jan Tulley, who chairs Council's finance committee, said she prefers the levy replacement because property taxes are a more stable revenue source, but supports the income tax increase because she believes it has a better chance of passing.
"Do I really have the warm fuzzies about it? No," she said.
Tulley, however, was the lone yes vote for the replacement levy, saying it was in recognition of a straw poll at the July 20 meeting, at which 27 city residents, some of them city employees, voted in favor of the replacement, while only seven voted for the income tax increase.
Martin voted against both the increase and replacement. He told the News Leader July 19 he believes the city needs to do a more thorough review of its finances before he would support either a tax increase or additional cuts.
Councilor Nick Molnar, who previously supported the income tax increase, said he changed his mind and voted against it because there may be a way to increase property taxes without impacting those in financial difficulties, including the unemployed.
"I don't know how all that works, but I would have liked to look at it," he said.
E-mail: jsaunders@recordpub.com
Phone: 330-688-0088 ext. 3169