State budget slights local communities
Wednesday, April 12, 2017 7:07 AM
PUTNAM COUNTY — During the recent State of the Union Address in Sandusky, Governor Kasich continued to push a controversial proposal for the centralized collection of income taxes from the net profits of Ohio businesses.
“We also need to reform our convoluted municipal tax system,” Kasich said. “Our tax department estimates that job creators could save $800 million if, in fact, we can reform this municipal tax system. That’s $800 million that can be put back into those companies to grow and to hire.”
The change would streamline the process for businesses, making tax filings easier. It is an argument that Ottawa Mayor Dean Meyer understands.
“I have heard accountants say the same things,” Meyer said. “There have been times when they will say, ‘This company has worked in town for one month out of twelve, and they have to collect this and that. It becomes challenging for them, and I do understand that.”
However, the very idea of the state collecting money on behalf of municipalities and townships does not sit well with many locally elected officials in the state, including Meyer.
“I don’t think it’s a good idea, Meyer said. “Anytime the State gets their mitts in [local tax dollars], it is somehow going to cost us money. They’ve shorted us on local government for funds for years. It’s just always, ‘take something from the little guy, take something from the little guy.’ I just, myself, I don’t like it.”
Mayor Meyer is referring to the significant cuts to the Local Government Fund instituted by the Kasich administration and their Republican allies in the state house. Back in 2011, the State closed an $8 billion dollar budget shortfall, in part, by cutting the Local Government Fund by 25 percent for the 2012 tax year, with cuts rising to 50 percent for the 2013 tax year. In 2011 the Governor and legislature also eliminated the estate tax, 80 percent of which previously went to cities and townships. Even though the State has rebounded admirably since that time, and even boasts a robust rainy-day fund in anticipation of the next downturn, there has been no serious discussion to-date of restoring any funds to local governments.
In a sense, instead of the State balancing its own budget, it raided the budgets of small local governments, and just at the moment they were beginning to recover from the Great Recession. This has resulted in a significant amount of distrust between municipalities and the state. In particular, many municipalities bristle at the 1 percent fee the state intends to collect for providing this unasked for service.
“To me that’s just the start,” Meyer said. “I don’t think it ends here. It’s just a continuation, maybe, taking more money out of the little guys.”
The Mayor does not mean to entirely cast the state as bad actor, always taking from local governments without giving much of anything back. He is quick to point that out, “They gave us a pile of money to help us with our flooding issues. It’s a delicate balance there. We have worked very well with them on a lot of things. I just wish they wouldn’t go this route with the income tax.”
This is a sentiment echoed by Leipsic Administrator, Justin Barnhart.
“When it comes down to it, you’ve got a long term issue that has been going on, and it predates the Kasich Administration,” Barnhart said. “There’s the question of who should be collecting taxes. From a business standpoint, it’s very easy to send your taxes to one place, like we do with our school systems. But, from a village perspective, we are still collecting a lot of taxes in-house, and we can do it better than outsiders. The fact is, when local residents are writing their tax checks, they like to know their money is coming to Leipsic, and staying in Leipsic, and not going to one of the big three cities. Our local tax dollars need to stay here because they’re used best here.”
Recently, Leipsic Village Council members passed a resolution officially opposing the proposed tax collection scheme.
Should it go into effect, this approach may also force municipalities into debt at the very beginning of 2018. The state intends to distribute collected money quarterly. Meaning taxes collected by the state on December 15, 2017 would not be distributed until April 15, 2018. This would place an additional burden on municipal governments, possibly requiring them to take on debt. They have little choice but to continue providing services to their residents while the state holds a potentially significant portion of their revenue.
Another possible issue involves the technological aspect of the proposal, and how the state intends accomplish the stated goal of streamlining tax collections for businesses. The state wants companies to use the Ohio Business Gateway. Created by the state fifeteen years ago, the OBG is intended to be a ‘one-stop shop’ for business tax filings. However, the system will reportedly require significant upgrades in order to handle income tax filings from the net profits of Ohio businesses, and is currently not compatible with the tax preparation software used by many accounting firms and CPAs.
System upgrades are scheduled to be completed by October 1, which is only 3 months prior to when Kasich’s budget proposal calls for collections to begin. As anyone who has dealt with system or software upgrades can tell you, this timetable leaves open a significant chance that the OBG will not be ready in time. The result of any delay would be handled through paper tax filings, which would later need to be entered into the system manually, increasing the likelihood of mistakes and undercutting the argument that this proposed change represents a ‘streamlined’ approach.