Northwood is drafting two ordinances that would increase revenue and reverse a slide in income tax collections since last year.
Council on May 13 could not decide on which of the two options – placing a quarter percent increase in the income tax rate on the November ballot, or a $10 monthly refuse fee - would be most effective.
A quarter percent income tax increase would be for three years and would bring in $500,000 annually, 80 percent of which would go into the general fund, Administrator Pat Bacon said after the meeting. It would become effective Jan. 1, 2011 if passed by voters.
The city would collect approximately $220,000 annually from a $10 monthly residential trash fee, which would start July 1.
Council, which did not back either option, preferred to give each of the proposed ordinances three readings to give the public time to offer input.
City income tax revenue so far this year is down 18.4 percent or $262,771, compared to the same period last year, according to Mayor Mark Stoner.
If the income tax revenue is still down by 18.4 percent by the end of the year, the city would have to cut $824,000 in expenditures from the 2010 budget.
“A total of $567,828, or 70 percent of this amount, would be in the general fund,” said Stoner.
The city has laid off personnel, and cut expenses, since income tax revenue started to drop last year.
“Personnel cuts already made in the general fund total $387,835,” said Stoner.
Councilman Mike Myers, chairman of the Finance Committee, said the committee at its last meeting discussed ways to increase revenue, including selling city property and eliminating tax reciprocity for residents who work outside the city.
The monthly trash fee, or the income tax hike would improve the financial condition of the city, said Myers.
“That would kind of get us up where we need to be. If we put that trash fee at $10 per month, and the quarter percent passed in November, then that trash fee would drop,” said Myers.
“We have to do something,” said Myers. “We don’t have enough employees we can cut, or enough revenue coming in to keep us above water. This would break us even until the end of the year. After that, if the tax levy doesn’t pass, we’re going to have to look at something else. Nobody wants to raise taxes, but we have to do something.”
Stoner said he liked Councilman Randy Kozina’s suggestion at the Finance Committee to use capital improvement funds to shore up the general fund.
“It’s a temporary fix, but it’s another option to consider,” said Kozina.
Councilwoman Connie Hughes liked the idea, but expressed concerns about “robbing Peter to pay Paul.”
“Like Mike says, nobody wants to raise taxes,” said Hughes. “But we don’t really want to force the reciprocity tax on citizens. By vote we can do that, and I’m not for that. I don’t have a problem with Randy’s idea. That would again buy us some time to possibly see what happens by the end of the year, and the early part of next year. Maybe we should go with that as an option right now. We also can’t rob Peter to pay Paul too many times with that account. I don’t want to see us doing it often. But I know we have to do something. We talk about it and we don’t do anything. We have to do something to keep this city running. We’ve cut to the bare bones. And like I said in Finance Committee, we’re piece mealing things right now. That’s not a good thing.”
Myers was also concerned about taking funds from the capital improvements fund.
“Where’s our revenue going to come from to put that back in? As we’re going downhill, there’s no way to replace it,” said Myers.
Council eventually agreed to Councilman Ed Schimmel’s suggestion to draft some of the options as ordinances, have three readings, and let the public offer input.
“Let people come in and comment on them, and do this as quickly as possible,” he said. “Then we can have a vote. Hope there are some people from the public who will have some input.”
“Sounds like a good idea,” said Hughes.
Council recently voted for 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. The move reallocates approximately $300,000 - $400,000 annually into the general fund.
Since all capital replacement expenditures have been frozen, the $1 million balance will remain in the capital replacement fund and be used only for emergencies.
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.
With the reallocation of the additional 10 percent into the general fund, the city has an estimated year end general fund balance of about $11,007, said Stoner.