Sunday, January 14, 2001

Cities budget less tax growth

Corporate income hit by slow economy

By Cliff Peale and Kristina Goetz
The Cincinnati Enquirer

        With an economic slowdown under way, cities throughout Greater Cincinnati and across America are expecting less in corporate income taxes from their largest companies.

        While those receipts are not dropping, cities are budgeting smaller increases for 2001 as sales and profit growth from their companies slows.

        “We're being much more conservative in our projections this year,” said Marvin Thompson, Blue Ash city manager. “We think it will be a more modest year in net profits.”

        Municipalities across the country are struggling with sluggish corporate and income tax revenues.

        Bill Barnes, research director at the National League of Cities office in Washington, D.C., said the most recent annual survey of cities' fiscal conditions showed that the flow of revenue growth had slowed.

        “What had been a constantly growing rate of revenue increase had slowed up,” he said.

        Some cities do not rely on income taxes. In Indianapolis, for example, the combined city-Marion County government relies instead on property taxes.

        But in Greater Cincinnati, most cities levy taxes on corporate sales or profits, often in conjunction with taxes on salaries.

        Laura Long, executive director of the Cincinnati Business Committee, the group of corporate executives that helps promote economic development downtown, said earnings-tax revenue is crucial to the city's future.

        “It's an indication of how important it is to grow the tax base,” she said.

        Collections from Blue Ash's 1 percent earnings tax on corporate profits increased 13 percent to about $21.1 million in 2000. But a sluggish stock market has convinced Mr. Thompson to lower expectations.

        In Mason, a flood of new companies moving into the growing city has produced healthy collections on the 1 percent corporate earnings tax, said Eric Hansen, assistant city manager.

        In 2000, Mason collected almost $12 million from the tax, up 11.2 percent from $10.8 million in 1999, he said. It has estimated a 5 percent increase in 2001, Mr. Hansen said.

        Erlanger levies a tax of 75 cents per $1,000 on gross revenue, not profits. The tax is capped at $40,000. However, only one company, Toyota Motor Manufacturing North America Inc., hit the cap, City Administrator Bill Scheyer said.

        Total collections increased to $464,200 for the fiscal year ended June 30, 2000, up from $449,100 the previous year.

        Mr. Scheyer said the city has budgeted about $500,000 in collections for the current fiscal year and was running slightly ahead of that pace.

        The city of Newport also levies taxes on gross receipts. Collections rose to $915,000 in 2000 from $820,000 in 1999, said Greg Engelman, chief financial officer.

        Officials in Covington collect 2.5 percent of all profits from corporations, sole proprietorships and other businesses, with a cap of $40,000.

        Collections for the fiscal year ended June 30, 2000, were $1.76 million. That is up only about 2.6 percent from the previous year's $1.71 million, city Finance Director Bob Due said.

        Covington has budgeted a 2 percent increase this year, he said.

        The sluggishness hit Cincinnati officials last week when 2000 collections from corporate net profits fell 13.7 percent from 1999, bringing revenue from the 2.1 percent earnings tax well below projections.

        That means more than $8 million in budget cuts from Cincinnati's general fund, which pays for such basic services as police, fire and snow removal.


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