City clarifies income tax credit rationale

Editor’s note: This is the first in a series of articles planned on the proposed 0.28-percent city income tax increase over the next few weeks. This article addresses confusion over legislation aimed at providing a larger tax credit for those who live in Van Wert, but work outside the city.

DAVE MOSIER/independent editor

Van Wert city officials met Wednesday in an attempt to end confusion over pending legislation that would double the tax credit now given to Van Wert residents who work outside the city.

Mayor Jerry Mazur and City Auditor Martha Balyeat, as well as City Councilman Bill Marshall, met to talk about questions that have arisen concerning the pending legislation.

During its last meeting on August 28, Council read for the first time a measure that would increase the credit for city residents who work outside Van Wert from the current 25 percent to 50 percent. However, the mayor stressed that the increased credit is contingent on passage of the 0.28-percent city income tax increase.

“This legislation is going to cost the city money, and we’re already looking at going in the red if something isn’t done to increase General Fund revenues, so we had to make it contingent on passage of the tax increase,” Mayor Mazur explained. “Without the tax increase, we just can’t afford to do this, even though we feel it is needed.”

Prior to his retirement, Income Tax Administrator Rudy Grant sent a letter dated August 14 to city residents who work outside Van Wert explaining the pending legislation, and the fact that it is contingent on passage of the income tax increase.

The mayor and auditor both noted that, even with the tax hike, city residents who work outside Van Wert would save money through the additional tax credit.

Mayor Mazur used an example of someone making $100,000, noting that, without any tax credit, that person would pay $1,720 a year in city taxes. The 25-percent income tax credit now in place would save the person approximately $400 a year, while the pending 50-percent credit would increase that to approximately $800 annually.

So, although the 0.28-percent income tax increase, if passed, would add $240 a year in taxes for a person earning $100,000 annually, the increased credit would mean a savings of approximately $160 a year in taxes over what a person is now receiving.

Balyeat also stressed that the 0.28-percent income tax increase is the first General Fund tax increase in 43 years. The city established a 1-percent income tax in 1974. The increase required no public vote at the time.

Two other income tax increases have been approved by city voters. The first was a 0.5-percent increase earmarked solely for street construction that was passed in 1997, while the second was a 0.22-percent increase earmarked for police and fire capital fund purchases, which was adopted in 2000.

Because of the recession that occurred in 2008, voters approved an issue in 2010 that allows the city to use up to two-thirds of the police and fire capital tax for police and fire salaries and benefits to maintain both departments at minimum manpower levels.

However, with the elimination of the state tangible personal property tax and estate tax, as well as deep cuts in other funds provided by the state to local governments, nearly $800,000 annually has been lost in state funding here in Van Wert. The amount lost in state funding is substantially greater than the funds provided by the police and fire capital tax, leaving the city looking at deficit spending if something isn’t done to increase revenues or cut expenses.

In addition, a 2.5-mill property tax issue that was placed on the ballot as a replacement issue, rather than a renewal, was defeated in 1997, resulting in a loss of $231,000 annually (the replacement issue, if passed, would have generated $300,000).

Meanwhile, cutting expenses will be difficult without also cutting personnel, Balyeat said, noting that nearly 66 percent of the General Fund, which is the only fund that would benefit from a tax increase, goes to funding the police and fire departments. Most of that money is used for salaries and benefits, she added.

Other General Fund departments include Van Wert Municipal Court (11 percent), Parks & Recreation (6 percent), the city administration (5 percent), Engineering/Code Enforcement (2 percent), street lighting (2 percent), and the city health department (2 percent).

Balyeat, an advocate of fiscal responsibility, said she feels city departments have done a good job of living within their means, but increased expenses, mostly due to inflation, have created a need for more General Fund revenues.

The city auditor also created a chart showing how much the additional tax would cost city residents in several income categories. The chart shows someone making $10,000 would pay an additional $28, someone making $30,000 would pay an additional $84, someone making $50,000 would pay $140 more, someone making $70,000 would pay $196 more, and someone making $90,000 would pay an additional $252.

Savings with the pending income tax credit would be as follows: $16.50 for someone making $10,000, $49.50 for those making $30,000, $82.50 for those making $50,000, $115.50 for those making $70,000, and $145.50 for those making $90,000.

Income that would not be affected by the city income tax increase includes active military pay, investment income (interest and dividends), pensions, 401K distributions, disability benefits, social security benefits, capital gains, and lottery winnings under $10,000.

The next article will deal with the fire department, and its functions.