All seven members of Hamilton City Council have signed a letter to Gov. John Kasich, urging him to invest this year’s projected budget surplus in local governments.
“You recently proposed using the projected surplus of $147 million to fund an income tax withholding reduction and an additional $68 million to max out the state’s rainy day fund,” the letter states. “The increase in discretionary dollars for our citizens is a good idea, however cities such as Hamilton do not have rainy day funds and we are facing severe financial challenges.”
The two-page letter added: “The projected surplus revenue would have greater statewide impact if it was returned to local governments.”
If Hamilton had the extra money, it could spend those dollars on road paving, capital improvements and other infrastructure, officials noted in their letter to the governor. Additional money also could increase the city’s ability to fund public safety services, and address issues that include the opioid crisis and homeless issues, officials wrote.
Hamilton’s arguments didn’t move Timothy Keen, director of Ohio’s Office of Budget and Management, who noted state government has many pressing financial needs of its own, including health-care costs for 2.9 million low-income residents, funding of schools across the state, Ohio’s public colleges, and drug-addiction programs.
The state has about a $2 billion rainy-day fund, a size some city leaders found quite large.
“We’re not talking hundreds of thousands of dollars,” said Council Member Tim Naab. “We’re talking billions of dollars.”
Naab said he’d like to “have those monies come back to the municipalities, not just Hamilton, Ohio, but that we should be part of that money that’s been sent to the state and hasn’t been reinvested back into municipalities, where our streets are crumbling,” and there are other infrastructure needs.
Keen, after looking at Hamilton’s official Comprehensive Annual Financial Report, said based on that document, which may not exactly synch with a local government’s actual general fund spending, that with Hamilton’s $35.96 million in revenues last year, “their year-end balance, in their CAFR general fund, was $7.9 million. They had a balance at the end of the year — again, from a CAFR standpoint — that was 22 percent of their revenue.”
The state’s “rainy day is 8.3 percent,” Keen said. “So they had more ending balance money available than we did (as a percentage of the budget).”
The state expects to have a surplus of $350 million this budget year, and Kasich has suggested that if that trend continues, $68 million be put into the state’s budget stabilization fund, which would bring that fund up to the target set by state law of 8.5 percent of the prior year’s revenues. The fund now is at 8.3 percent of that level, Keen said.
During the seven years from the start of 2012 through this year, Hamilton will have lost a total of $18.85 million through cuts in three funds the city used to rely upon, according to Hamilton’s letter. Those funds are the local government fund, the estate tax and personal property taxes.
Here’s a look at each:
- The local government fund was deeply cut in 2011 and 2012, “which is getting to be a long time ago now,” Keen said. The local governments that received local government funds typically received an average of between 3-5 percent of their total budgets, Keen said.
- State lawmakers repealed the estate tax, on the belief that the estate tax was bad policy. “Maybe the city of Hamilton feels like we still should have a death tax, an estate tax,” Keen said. “But there was a policy choice made to eliminate that tax source at the state level.” Of those estate taxes, 20 percent used to go to the state, with 80 percent to local governments.
- Personal property taxes were repealed in 2005, Keen said, and the ability to collect local tax revenues was phased out over several years. “Since 2005, they’ve known — they should have known, they could have known — that tax revenue and the temporary state transition payments were going to go away. So that should be no surprise.”
It wouldn’t be fiscally wise to spend the expected surplus for ongoing needs, Keen said.
“Surplus monies are by their very definition one-time monies,” he said. “And the governor’s proposal was to responsibly dispose of these one-time monies in a way that they would not lead to structurally imbalanced spending in the future, meaning if we spend these one-time monies, when you get to next year, that won’t be recurring revenue. We’ll be spending a little bit more money than our ongoing revenues would support. So he’s trying to responsibly take that money off the table so we don’t spend it in a way that’s going to get us into trouble in the future.”
“What the officials in Hamilton are basically saying is, ‘Give us this one-time money, and let us spend it,” Keen said, “which will set you up for problems in the future.”
Cities, counties and other entities across Ohio have been sending similar letters, arguing they deserve the funding, Keen said.
“It’s my view that local governments often overstate the impact of state-government assistance — the local government fund and other state policy changes — on their finances,” Keen said. “Clearly, there’s been an impact. But my view is there’s a whole series of other factors: Local economy, local budgetary decisions, local revenue choices, local policy choices, general management choices that come into play, that need to be taken into consideration.”
In a step toward fixing its crumbling streets, Hamilton recently asked the Butler County Auditor’s office to calculate how much a 4.9-mill levy would generate, a step toward placing a street-repair levy on the May, 2019, ballot.
“If they want to go and make their case to the next General Assembly and the (next) governor that there ought to be an increase in local-government aid in that budget, they ought to go ahead and do that,” Keen said. “The next General Assembly and governor are going to have to weigh, with whatever additional resources the state has to budget: Should we give it to the local governments? Should we increase funding for the schools? Should we help support institutions of higher education? Do we continue to fund the growth of the state Medicaid program, where we have health-care costs for 2.9 million low-income Ohioans? Should we allocate funding for mental-health programs and state programs for the opiate crisis? The state is responsible for a wide range of programmatic and operational issues — aid to local governments is just one.”
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