July 7, 2005

By Robert Mihalek

Village Council members spent the majority of a special meeting last week debating options available to raise Village revenue, focusing much of their attention on finding additional funds to pay for capital improvement projects.

Among the options suggested by Council members were raising income taxes, putting in place a property tax for capital projects, increasing utility rates and relying on residential and business growth to generate more revenue. Council also discussed the idea of adjusting the reciprocal tax credit, which is granted to Yellow Springers who work in other municipalities that charge income tax. For instance, local residents who work in Dayton, where the income tax is 2.25 percent, do not pay income taxes to the Village, which has a 1.5 percent income tax, while all income taxes for Yellow Springers who work in Beavercreek, which does not have an income tax, go to the Village.

Council’s discussion indicated that Council members would likely pursue a strategy that involved a combination of tax increases and borrowing, while continuing to keep spending on day-to-day operations from rising too fast.

Held June 27, this was the second meeting Council has held on creating a five-year Village finance plan, which has been a goal for Council for the last two years. Council members have said that the plan will address increasing Village revenue, reducing costs and funding the Village’s many capital improvement projects, which total almost $3.88 million from 2006 to 2009, according to an inventory of capital improvement projects.

Council members are also using information gleaned in two financial surveys they commissioned last year and in early 2005 asking Yellow Springers about their support for certain options to raise revenue and cut costs from the Village budget. The project included a random telephone survey, which involved 309 households, and a mail survey that was sent to all Yellow Springs households. A total of 589 households, out of 1,639, completed the mail survey.

To assist Council in its dialogue last week, Council president Tony Arnett prepared computer models projecting the Village’s budget, including capital projects, over the next five years. The models also computed how the Village budget would change based on increases in such areas as income taxes, property taxes, utility rates, and population and jobs, as well as adjustments in the reciprocal tax credit.

Arnett told Council that he did not expect decisions to be made during the meeting. Council is “just starting to wade into” this discussion, he said. And that’s how Council members approached the discussion, brainstorming ideas to cover the Village’s large capital improvement list.

Based on the computer models, Arnett cautioned that growth would only go so far. He said that job and population growth would contribute more revenue to the Village general fund — which includes Village activities except the utilities and is supported by income taxes — than to the Village utilities.

The Village “can’t look to growth to solve utility problems,” Arnett said. Later in the meeting he said that the Village gets “more out of” utility rate increases as a way to sustain the utility systems.

Council member Jocelyn Hardman expressed support for growth, saying, “if we don’t grow we will fail” to raise additional revenue.

Arnett stressed that the Village could keep down its day-to-day costs and spending on capital projects by encouraging development in an “economical way.”

Council members and Village Manager Rob Hillard suggested that the Village could pay for projects by borrowing the funds. Because the Village is scheduled to pay off several loans this decade, several officials said the Village could better afford to borrow funds to pay. However, Arnett said that he was cautious about this approach because “you’re borrowing on the future,” noting that he does not want to saddle future generations of Yellow Springers with debt.

Council member Denise Swinger suggested that Council consider implementing a property tax levy to pay for capital improvement projects. She said that the “community might support a levy if they understand it was for a specific [project] and for a certain time.”

Rickenbach said he was “intrigued” by Swinger’s idea for a capital improvement levy, noting that he thought it worthwhile to explore it as a possibility, even though he said that he recognized that a property tax is the most regressive of the taxes Council has available. He also said that a property tax could help minimize how much income taxes were raised.

A property tax would have to be approved by voters. Arnett said that according to Village Solicitor John Chambers, Council could raise the income tax rate or adjust the reciprocal tax credit without a ballot measure. Arnett pointed out that he was not advocating that Council do that.

Rickenbach said that any increase in income taxes, including an adjustment of the tax credit, should be placed on the ballot for voter approval. According to Rickenbach, the first income tax in Yellow Springs was put into effect by Council and then repealed by voter referendum. Based on that experience, Council has asked voters to approve all increases in income taxes, Rickenbach said.

Arnett said that Council could place a “sunset” on an income tax increase or adjustment of the reciprocal tax credit. However, he noted, Council could be tempted to not let the tax hike expire.

According to information prepared last year by former Council member George Pitstick, based on 2002 financial data, the Village could increase income tax revenue by $226,000 a year by raising the income tax to 1.75 percent, and $446,000 if the tax is raised to 2 percent.

The Village could generate $158,000 a year in additional revenue by halving the reciprocal tax credit and $318,000 a year by eliminating the credit all together, according to Pitstick’s data. The Village could receive even more revenue if it lowered the reciprocal tax credit and at the same time increased the income tax, Pitstick’s analysis shows.

Despite the interest in pursuing a property tax, Council members acknowledged that it would likely be unpopular.

Respondents of both the mail and phone surveys ranked raising property taxes their least preferred method of generating revenue. Almost 79 percent of respondents of the mail survey either somewhat or strongly opposed raising property taxes, while almost 77 percent of those quizzed in the phone survey also opposed an increase of property taxes.

Over 80 percent of survey respondents ranked job and population growth as their top two preferences to raise revenue, according to a summary of the results prepared by Wright State’s Center for Urban and Public Affairs, which conducted the surveys. Overall, the support for growth as a means to raise revenue was much greater than support for raising taxes or utility rates, the survey results show.

Out of the three tax options listed on the surveys, respondents supported reducing or eliminating the reciprocal tax credit the most. Forty-two percent of mail survey respondents and 56 percent of phone survey participants strongly or somewhat supported this idea.