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Whether to raise Shaker Heights’ city income tax now lies in the hands of voters.
A unanimous City Council, saying an increase is critical to the city’s financial health, agreed Monday to call a special election on the measure. If voters approve Aug. 7, the tax rate would rise to 2.25 percent from 1.75 percent, bringing in an additional $6 million a year.
Without an increase, council members argued, the city cannot cope with the Ohio Legislature’s repeal of the estate tax and cuts to the local government fund.
"If there was any way possibly that I thought we could maintain our current level of services and our current level of what Shaker means without conducting this tax increase, I'd be the first to shout it from the rooftop,” Council Member James Brady said.
Mayor Earl Leiken agreed.
"No matter what methodology you use to calculate our losses resulting from the actions of the state legislature, these actions require either additional revenue or reductions of at least $6 million," Leiken said.
The income tax now brings in about $20.5 million, more than 55 percent of the $37 million in revenues in the city’s budget, Leiken said. According to the city’s financial task force, Shaker’s 2012 general fund has a $2.4 million deficit. The additional $6 million from an income tax increase would replace the estate tax receipts, local government fund cuts and other losses. Without the increase, officials said, the city would face cuts to a range of services, including those from the the police, fire and public works departments.
Councilwoman Nancy Moore said the city "could have made it" if it weren't for repeal of the estate tax, which takes effect Jan. 1.
The city received about $6 million a year from the proceeds, which Leiken said helped the city pay for its self-insurance fund, debt service, capital projects and more.
Councilman Earl Williams said that in repealing the estate tax, legislators and farming interests apparently wanted to ensure that farmers would be able to pass their land to their heirs without burdensome taxes.
"Less emphasis was given to the impact that it was going to have on the cities who didn't have farm land, but, in fact, receive this money for their capital budgets," Williams said.
Leiken said the city also lost $742,500 per year from the cuts in the state local government fund.
Real estate developer Dick Pace expressed concern that an income tax increase would hurt residents and businesses who might consider relocating to Shaker.
"We finally are at a point where Beachwood has a higher income tax (2 percent), and that gives us a competitive advantage when we're trying to recruit businesses here to our city," Pace said. "We're going to give that competitive advantage back to Beachwood again."
But Leiken countered that Shaker's potential 2.25 percent rate likely wouldn’t deter prospective businesses. And Shaker Heights Chamber of Commerce President Debra Hegler added that business owners she talked to have not opposed a higher rate.
Councilman Rob Zimmerman suggested residents who oppose the income tax do what he did last weekend — drive around the community and try to imagine what it would be like if the city lacked money to uphold its services and programs.
In a wage comparison between 2007 and 2012, Leiken displayed the cuts the city made to help funding. The city has 30 fewer police and fire workers now than in 2007. Overall, the cut 58 jobs, reducing its workforce by 15 percent over the last four years, Leiken said.
"Under the mayor's leadership, the city has taken very, very extreme measures to rein in our spending," Brady said.
Following the meeting, Leiken said the response time of police and firefighters could be affected through additional layoffs if the voters don't approve the increase.
"I think we average 2.2 minutes for a Category 1 crime, and the fire response is 3.3 minutes," Leiken said. "These are way under the national averages."
The mayor said safety, snow removal and trash pickup were other examples of services that would be sacrificed without more revenue.
"People do pay higher taxes here, but they expect higher service," he said. "They'll still be paying higher taxes if this doesn't pass, but then they won't get the service.
"All they'll be left with is higher taxes, and that's not very attractive."
The city will also hold a public meeting on Monday to discuss consolidating fire services with University Heights as a cost-cutting measure.