Northwood City Council voted 4-1 in favor of an ordinance that amends the city’s taxation code to eliminate the 10 percent income tax disbursement into the capital replacement fund and reallocate it into the general fund.
Currently, there is approximately $1 million in the capital replacement fund. Finance Director Toby Schroyer said the 10 percent income tax disbursement into the fund each year was approximately $300-$400,000. Since all capital replacement expenditures have been frozen, the $1 million will remain in the fund and be used only for emergencies.
The ordinance only requires future capital replacement disbursements be reallocated to the general fund.
The city hopes to reduce the strain on the general budget, which has been cut as a result of fewer income tax collections in the last 12 months.
Before the ordinance, the city had disbursed 70 percent of income taxes into the general fund, 20 percent into the capital improvements fund, and 10 percent into the capital replacement fund.
Now that council has voted to eliminate the capital replacement fund, 80 percent of the income tax will be disbursed into the general fund, and 20 percent into the capital improvements fund.
Voting in favor of the ordinance was Councilmen James Barton, Dean Edwards, Ed Schimmel, and Randy Kozina. Councilman Dave Gallaher was opposed. Council members Connie Hughes and Mike Myers were not in attendance.
Gallaher asked council to table the measure and send it back to the Finance Committee for further discussion.
Schroyer, said Gallaher, had indicated that the capital improvement fund could be underfunded. He would prefer seeing a percentage of the capital replacement fund go into the capital improvement fund rather than the entire 10 percent being reallocated to the general fund.
“What concerns me is that the ordinance really doesn’t create money for the city,” said Gallaher. “It creates the impression of money for the city. It will be doing away with the 10 percent going into capital replacement. It will go into the general fund. It will allow us to have a carryover, but it really doesn’t fix what’s broken, and just gives us a false sense of security. The other thing it does is it puts 10 percent into the general fund, where it can be sent, which is very, very short term, which is a good thing, but if our capital improvement fund is currently underfunded, and we’re doing away with our capital replacement fund temporarily without looking at all the numbers too carefully, I wonder if the capital improvement fund might be stretched even a little bit more by the lack of replacement money there. I know we have money in capital replacement currently, but if you start looking at making purchases that we have put off in the past, or potentially could be put off in the future again, that
money could go pretty fast. I’m not asking anyone to vote no. I’m just asking if we can get this back to finance one more time and discuss it, and get all the information before we change it.”
Kozina said the ordinance should be passed, and the city could reevaluate its impact on capital replacement.
“I think we need to do this now,” said Kozina. “And obviously, continue monitoring this. But the capital replacement is also overfunded, over what [Schroyer] would like. So I think we need to move ahead with it now, and as we’re doing everything else with finance, reevaluate it every month. But it sounds to me the sooner the better to start getting this 10 percent into the general fund to keep things even. I agree with you, I don’t like to do it, but at least until we decide any other avenues, I think it needs to be done as soon as possible, if we’re going to do it, win, lose or draw.”
Gallaher, as the only opponent of the measure, said “I hope you’re all right, but I can’t support this the way it is.”
Schroyer said after the meeting that the $1 million capital replacement fund should last the city a few years.
Gallaher said after the meeting that he agrees reallocating the money buys some time so long as there is no need to make large capital replacement purchases.
“If we’re doing away with replacement, and we have $1 million in the capital replacement account, and we need to buy city vehicles for $13,000 each, a million goes far,” said Gallaher. “But if we need to buy an ambulance or dump truck or plow or end loader, we would be spending $100,000 to $200,000 per purchase. If we don’t make those expenditures, we’re going to have to keep everything we have in working order. The things we’re trying to get the most out of will end up costing us most to keep.”