How will Butler County’s finances do in the next few months? Possible recession prompts questions

Credit: Nick Graham

Credit: Nick Graham

Sales tax collections up for multiple reasons.

With a possible recession on the horizon, Butler County commissioners want a deep dive into their financial condition, which actually shows the highest collections to-date for property and sales tax ever.

Finance Director Dave McCormick gave the commissioners their monthly dashboard of general fund revenues and expenditures for February. The report shows revenues are up for the year by 11.2% at nearly $18.4 million versus expenditures of $17.5 million, a 1.6% decrease.

“Starting here in April I want us all to look at sales tax, cars sold, houses sold and for us to try to determine how we think Butler County is going to do in the next few months,” Commissioner T.C. Rogers said.

According to the Ohio Dept. of Taxation, the county culled $5.5 million in sales tax last month, which county officials say is the highest collection ever. That brings the sales tax total for the first quarter up to nearly $15 million, up significantly from the $11.6 million collected pre-pandemic. Sales tax distributions lag, so the March distribution reflects spending from December.

The county collected a total of $56.3 million in sales tax last year. This tax is the county’s general fund largest revenue source.

Not just inflation

University of Cincinnati Kautz-Uible Professor of Economics Michael Jones said contrary to popular belief, rampant inflation is not the only reason sales tax collections are high.

“If you look at the spending numbers even the most recent spending numbers at the national level we’ve seen surprisingly increases in consumer spending. So real increases in spending along with inflation is driving the higher numbers,” Jones said.

“It is surprising, because certainly during COVID there was a lot of pull back initially, but then consumer spending has been resilient and surprisingly strong over these last two or three years. There’s a couple warning signs obviously on the horizon, but I think at least in the next couple months we’ll continue to see pretty strong growth.”

He said part of the reason is all the various forms of pandemic relief and stimulus money the federal government pumped into the economy early on in the crisis, “all of those things really caused consumers to build up a nest egg, along with really strong employment, a lot of that has carried consumers into 2023 but now there are storm clouds on the horizon.”

He said there were concerns in the city of Cincinnati that income tax would tank and that didn’t materialize, but he said governments such as Butler County are prudent to be vigilant now because it’s “not if but when” a recession is going to hit.

Property tax is the second highest revenue source that fuels the county general fund. County Auditor Nancy Nix provided the Journal-News the distribution list for first half collections this week and the county is receiving $10.3 million compared to $23,745 last year. The county collected $9.8 million in 2021.

The commissioners gave taxpayers an $18.5 million break last year — both first and second half collections combined — and the increased collection this year also includes retroactive taxes due to former auditor Roger Reynolds’ two-year property value war with the state tax commissioner.

Reynolds lost his appeal over the 2020 reevaluation last fall, so tax bills for 2020 and 2021 had to be recalculated for residential and agricultural properties Reynolds challenged in Fairfield, Hamilton and Fairfield and West Chester townships, and the adjustments were on the first half tax bills.

That meant 48,999 taxpayers in Hamilton and Fairfield and West Chester townships saw tax bill adjustments totaling $6.1 million.

Higher interest rates benefit bottom line

Other than the 43,192% increase in property tax collections, the next highest revenue increase was a 275% jump in investment income from $145,000 last year at this time to $544,135 in February, another sign of the economic times. Nix is the former county treasurer — responsible for the county’s investment portfolio — and she said the hike is due to the federal government regularly raising interest rates in an effort to battle inflation.

“The feds have been raising interest rates quickly over the last year to combat inflation, we’ve also had a lot funds on hand at the county,” Nix said. “It’s just time value of money and the interest rates are going to bring in a lot higher interest revenue for the county.”

Bill Even, an adjunct economics professor from Miami University explained why hiking interest rates will hopefully cool inflation, which is wreaking havoc with many county operations, such as road projects the county engineer is endeavoring to construct.

“A primary cause of inflation is people are spending more than businesses are able to provide at previous prices,” Even said. “So as spending goes up, prices go up. As spending levels go down that’s going to reduce the upward pressure on prices.”

Even said looking at job growth and other indicators, a recession is likely inevitable.

“Economists keep saying — we’re never sure, we’re worse than weather forecasters I guess — but the chances of a recession over the next six to 12 months is fairly high,” Even said. “The fed is trying to walk a real tight line, they want to slow the economy down to prevent inflation from continuing but if they keep pushing interest rates up higher and higher, the risk that instead of a soft landing we have a crash landing to the economy.”

The county nearly fell off a fiscal cliff during the last recession. Twice, sometimes three times a year, pay hikes and increases in the double digit range were normal back then. In 2009 Commissioner Don Dixon and now Supreme Court Chief Justice Sharon Kennedy, who was the domestic relations judge then, convened a summit of office holders, department heads and business leaders, to deal with what was dubbed a “perfect storm.”

“We have the equivalent of a Category 5 financial hurricane headed our way, and if we choose to ignore that reality, our county will be in financial ruin,” Dixon warned at the time, after his fellow commissioners unilaterally cut $2.6 million in July 2009 as a stop-gap measure. “We cannot continue with business as usual. It’s a recipe for disaster.”

The county stopped short of imposing a sales tax hike but massive layoffs — largely in the sheriff’s office — ensued.

The county made a remarkable turnaround, erasing all general fund debt — that stood at $91.3 million in 2009 — in 2020 and as of the February dashboard there is $100.5 million in unencumbered cash, including $16 million in the rainy day fund. Cash balances had dipped below $10 million in 2010.

Officials continue eye economy cautiously

During budget hearings last fall, Dixon told other office holders and department heads if the economy turns for the worse they would be considering a hiring freeze. He told the Journal-News they’re not there yet.

“It’s too early to tell, it’s really a mixed bag out there right now,” Dixon said adding “as far as our county finances go I think Butler County is in the best fiscal shape it’s ever been in. We’ve got the best group of office holders working with us, we’ve all got our eye on the ball and we’ll see what happens. If it (recession) doesn’t happen great and we’ll move on. But we still have to be a little cautious.”

The financial dashboard for the end of 2022 showed revenues at $109.7 million versus $129.3 million in 2021 — due largely to the commissioners’ tax break. Expenses last year totaled $125 million compared to $88 million the prior year.

Personnel costs are the highest slice of county expenses, and throughout last year, the commissioners and other offices made adjustments to salary ranges based on recommendations from Clemans Nelson, to remain competitive and staunch the flow of resignations.

County Administrator Judi Boyko noted they only have two months of data in the books, but she will recommend they stay the course of being ever vigilant, “we’ve built a good model in terms of monitoring and tracking and being very attentive to the way we spend money.”.

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