Wednesday, April 04, 2001

City's finances 'not rosy'

Treasury takes $7.5 million hit

By Robert Anglen
The Cincinnati Enquirer

        Earnings taxes never recovered last year, leaving Cincinnati coffers with a $7.5 million shortfall.

        While that has city officials promising more cost-cutting, a potential loss of millions in state revenue also has them worried.

        “This is not the rosy report I would like to give,” City Manager John Shirey said Tuesday. “Neither is it a reason for any of us to go to the fourth floor of the building and jump off.”

        But the state could push local officials closer to the edge, if legislators move to cut estate taxes and a local government fund that, combined, pumped about $45 million into the city last year.

    City manager John Shirey is calling for:
    • A continued hiring freeze for vacant city positions.
    • Freezing the city's contribution to a police compensatory time reserve account for a savings of $740,000.
    • Delaying a $6 million payment for the riverfront street grid until 2002.
    • Delaying $1.8 million in planned projects, including $1.3 million for the renovation of the Newberry Building and $500,000 for upgrading lighting on Central Parkway.
    • Using a $1.7 million rebate in the city's workers' compensation fund to offset general fund expenses.
        “Such a change in state law would be devastating to the city budget,” Mr. Shirey said in a report to City Council's finance committee. “We have had no word from the state about it.”

        The city takes in between $15 million and $20 million in estate taxes every year, with last year's $14.6 million accounting for about 5 percent of the city's $300 million general fund.

        The general fund pays for such basic city services as police and fire protection and snow removal. Another $31 million came from the state's local government fund, a fixed amount based on sales tax, income and corporate franchise tax that is tied to the growth of the state's economy.

        Mr. Shirey said the city budget anticipated a 3 percent increase in the local government fund, but Gov. Bob Taft has asked the Ohio General Assembly to freeze it at the 2000 level.

        “I am recommending that we proceed with caution,” Mr. Shirey said, adding that he is worried the governor will not just freeze the fund but reduce it.

        Despite the threats from the state, he said the biggest concern is earnings taxes, which account for 61 percent of the general fund. Although estimates last year predicted the shortfall, Mr. Shirey said there is no sign it is getting any better.

        “Revenues were flat compared with previous years,” Mr. Shirey said. “We hoped to see a bounce in December; that didn't happen. We did see a bounce in January, but it went back down in February.”

        Anyone living or working in the city pays 2.1 percent of their wages in city earnings taxes. Earnings of sole proprietors and partners and the net profit of corporations are taxed at the same rate.

        The city collected $247.9 million in earnings taxes in 2000, compared with $247.4 million in 1999.

        Earnings taxes accounted for $183 million of the city's $300 million general fund last year.

        In a January report to council, finance officials said there was a 13.7 percent decrease in corporate net profits.

        It appears that earnings taxes for March might also be down, Mr. Shirey said. That has him calling for a freeze or delay on some spending.

        “The problem hasn't changed,” Councilman Pat DeWine said Tuesday. “The issue is the city spent too much money last year. It spent about $15 million more than it took in.”

        Budget documents show the city's general fund started the year with a $31 million carry-over balance that fell to $15.9 million by the fiscal year's end in December.

        In addition to the earnings tax problems, four other city accounts also are down, including a loss of $175,000 for the city's parking facilities, $76,600 for the convention center, $56,900 for Lunken Airport and $68,900 for municipal golf.

        Of these, Mr. Shirey said the only one of concern is the city-owned convention center.

        “This is the first time in a long time we have finished with a deficit,” he said. “That stems directly from reduced bookings.”

        The other accounts are based on seasonal uses and will likely increase through the year, he said. But Mr. Shirey said there isn't enough surplus available to repeatedly balance the convention center budget.

        Councilman Phil Heimlich said Tuesday that all of this shows the need for the city to let private companies take over city services.

        “If we're going to be serious about balancing the city's books, the answer is to put city services out for competitive bid,” he said. “I hope this (crisis) will not be used as an excuse to raise taxes.”

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