A Look at Shaker's Income Tax Increase

Shaker Heights keeping belt tight, looking to grow business base

City operating revenues have been slowly declining since 2007.

So , a mostly residential community, turned to residents earlier this month to approve a 0.5 percent income tax increase. Revenue from income tax collections comprise about half the city’s between $34 million and $36 million general operating revenue.

Voters agreed by a to the increase and will now pay 2.25 percent in income taxes.

“As operating revenues went down, we started reducing the size of our workforce and reducing services, so for the city of Shaker Heights this process has been driven conditionally by the decline of revenue,” Finance Director Bob Baker said. “For a city like Shaker Heights, which is 90 percent residential if not more, our income tax revenues go up or down depending on whether or not people are being paid money.”

Shaker Heights residents who work elsewhere are eligible for a 0.5 percent credit for their own paycheck withholdings but are still responsible for paying 1.75 percent income tax.

In other words, residents of Shaker Heights pay nearly all income taxes. That’s typical of other cities near Cleveland such as Lakewood and Cleveland Heights, but it’s not the norm for most Patch towns, where the majority of income taxes are paid by employee paycheck withholdings.

That’s a reflection of the few businesses and mostly residential makeup of the city, which is how the city was, in part, developed.

“We were really created as a bedroom community,” said Economic Development Director Tania Menesse, who has a framed advertisement for the city that reads ‘But in Shaker Village You are protected for all time from the invasion of Commerce.’ “The Van Sweringens, who started Shaker Heights, their goal was that people would come here and be free of commercial invasion.”

That environment plus the city’s history poses a challenging question: How do you work around that?

None of Shaker Heights’ land is zoned for manufacturing, and only 8 percent is commercial. Two of the city’s commercial districts, Fairmont Circle and Larchmere, are nearly full. So is the Tower East building on Chagrin Road on the city’s east border. But only 29 percent of usable land on Lee Road is being used, and 60 percent of the Van Aken district is occupied.

“We really have to work much harder to get our word out, so we spent a lot of time and energy on this marketing campaign,” Menesse said of the Work-Live Shaker Heights 2020 plan. “It’s as much marketing to our own residents to get them thinking about the fact that Shaker is a place to do business. We have lots of entrepreneurs and business owners who live in our community, and our best opportunity to build our commercial district is for them to choose to locate their businesses in the community.”

Despite the small number of existing businesses, the big employers the city does have — University Hospitals administrative offices, Shaker Heights Board of Education, city of Shaker Heights and the schools — have largely been unaffected by the recession.

Schools may have a few less teachers compared to several years ago but not 25 percent less. And, Baker added, professionals and high wage earners tend to have fared better than blue collar workers during the recession. Both have helped income taxes stay fairly stable —  good news for the city.

Total income tax revenues in the past four years were:

  • $20.8 million in 2008,
  • $19.6 million in 2009,
  • $19.8 million in 2010,
  • $20.6 million in 2011 and
  • $11.4 million as of June 30, 2012.

“If you look at our annual totals, yes, from 2008 to 2009 we went down $1.1 million, but 2010 we’re up $150,000. We’re up $800,000 by 2011, (and) we’re within $200,000 of where we were in 2008,” Baker said. “That reflects the demographics of a relatively employed, well-compensated population.”

Working with an economic development firm, the city identified four main categories of business professionals it wanted to attract: IT/software development; ambulatory care, or adjunct services around medical offices like chiropractors and nutritionists; architecture and design, especially in green energy; and professional services like lawyers and financial planners.

“The four segments really came from building off on what we already have in this city and what does the population of this community do and where could we fit from a business perspective,” Menesse said.

While the city works to grow more startups and small businesses in the next decade, the higher income tax rate will help the city maintain city services and finances without additional budget cuts.

Editor’s Note: In this series, Patch gauges the recovery of 18 Ohio communities based on income tax receipts since the Great Recession. Read about


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