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Report spurs talk: Discussion continues on income tax credit elimination

February 7, 2012

Councilor-at-large Tom Finkelmeier Jr.

Discussions regarding the scaling back of an income tax credit to people living in Wapakoneta but working outside the corporation limits are to continue — in committee and before the entire council.

After Wapakoneta City Council members heard a Finance Committee report where the topic was introduced, councilors started to voice their thoughts on the issue in light of general fund expenditures outpacing revenues  — and the path the city should take.

Mayor Rodney Metz told the Wapakoneta Daily News he favors collecting more income tax data and learning more about the ramifications of the income tax credit’s reduction and elimination.

“I want to see all the information come together and I want to hear all the opinions of city councilors because there is some justification on both sides,” Metz said. “Let’s see what the true figures are — we have figures for what we are giving away each year, but (1st Ward Councilor) Jim Neumeier brought up a very good point of how much in taxes we are collecting from workers that work here but live in another community.

“We need to see what all the figures are before we make a decision,” the mayor said.

During Thursday’s Finance Committee meeting, Councilor-at-large Tom Finkelmeier Jr. proposed vetting a reduction or elimination of the income tax credit because the general fund’s cash carryover is declining as the city plans it expenditures for 2012.

Finkelmeier made the proposal because while income tax revenues have stabilized, they fail to keep up with inflation for wages, equipment and materials needed by the city. This is coupled with municipalities receiving fewer and fewer dollars from the state and federal governments — creating a deficit and requiring the use of cash carryovers to balance the city’s financial books.

In 2011, income tax collections totaled $2.109 million in 2011, down from $2.119 million in 2010, but the amount is an increase from $2.065 million in 2009. Total revenue is anticipated to total $4.26 million, while spending increased approximately $418,000 to $5.4 million from $5 million. There is a $1.2 million cash carryover today.

Wapakoneta 3rd Ward Councilor Bonnie Wurst, who chairs the Finance Committee, learned the elimination of the income tax credit would generate $485,000 more in income tax revenue for the city.

During Monday’s Wapakoneta City Council meeting, Neumeier requested his colleagues give their opinion on the matter.

Councilor-at-large Steve Walter favored reducing or eliminating the tax credit in the future.

Walter, who chaired the Health and Safety Committee in his previous two terms, said “it became painfully obvious that the way the current tax credit is set up and realizing the income tax has a direct effect on the general fund which funds safety services” that people working outside the city and living inside the city limits receive a form of a tax break.

“After serving a short time on the committee, I soon understood somebody working in another community currently receives a tax break by paying taxes to another community while Wapakoneta is paying for and providing 24 (hour)-7 (days a week) police and fire protection whether they are here or in another community for 40 hours,” Walter said. “It is my considered opinion, I don’t think the current model is sustainable in the face of the income tax collection and the trends we have in income tax.

“Personally, I think that credit needs to be revised and if the taxpayer has an issue with that, they really have an issue with the municipality where they work and not where they live,” he said.

Finkelmeier spoke next and explained the city is permitted by the Ohio Revised Code to tax up to 1 percent and any amount in excess of that amount must be approved by the voters. With the current economic conditions, he said it is unlikely voters would approve an income tax increase.

He also provided income tax rates for area municipalities — noting St. Marys and Celina impose a 1.5 percent income tax and Van Wert imposes a 1.75 income tax rate, while Wapakoneta is at the minimum of 1 percent.

Starting his research on the matter, Finkelmeier apologized for not having the exact number but he said he believes approximately 70 percent of the municipalities provide a credit, but the number is falling precipitously as municipalities struggle with balancing their books.

“Many other municipalities are like us — they are cash strapped and they look at that credit as a luxury,” Finkelmeier said. “In my personal opinion, it truly is a luxury. I don’t understand the rationale behind the origination of that credit.

“Your property is here, your first-responder fire and police are here — why on Earth would we sacrifice our income tax to another municipality,” he said. “We don’t take a share, but the other cities sure take their full share.”

Councilors agreed with Neumeier that Safety-Service Director Bill Rains needs to gather income tax numbers on people who work in Wapakoneta, pay income tax here and live in another city.

Finkelmeier also explained his rationale to councilors for phasing out the income tax credit. He said he based it on Neumeier’s desire to phase in the Long-Term Control Plan fee instead of charging the fee all at once.

“If we are going to back away from this tax model, I felt it would be better to phase it out,” Finkelmeier said. “I suggested reducing it by one-quarter and one-quarter and then have council reassess the situation and determine if we need to take the remainder, while the city auditor wanted to take one-half of the credit this year and the remaining half next year.”

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