Why Shaker Heights Wants an Income Tax Increase

Editor's note: This is the first of four stories examining the city's proposal to increase its income tax rate. Voters will decide on Aug. 7 whether they should accept the city's proposal to produce more revenue through an increase from 1.75 percent to 2.25 percent.

Over the last four or five years, city officials have done what they could to deal with ever-tightening finances — cutting 60 city jobs, furloughing workers and renegotiating labor contracts.

That job became much harder when, in the last state budget,  the Ohio Legislature cut support to local governments and abolished the estate tax - both prime sources of revenue to cities like .

Now, officials say, they have no choice but to ask voters for an increase in the city income tax from .

“There really aren’t good, viable alternatives to an income tax increase if we are to maintain adequate services and meet capital needs in the community,” Mayor Earl Leiken said recently.

The estate tax alone brought about $5.6 million into city coffers each year from 2002 to 2011, records show. Finance Director Bob Baker said the money paid for capital purchases like new police cars and fire trucks, maintained the city’s self-insurance fund and helped pay down in its $25.3 million in outstanding debt.

The tax expires Dec. 31, although the city will collect some money from the estates of wealthy residents whose estates have not been settled.

"With no more estate tax in the future, how do we finance these things that, historically, the estate tax has financed?" Baker asked.

The legislature also took the ax to the local governments fund, which had brought Shaker Heights about $742,500 per year, for a total annual loss to city finances over $6 million

If voters approve the income tax rate increase Aug. 7, the city would get enough revenue to offset these losses.

"There isn't an obvious (alternative),” Baker said, “other than taking money from the general fund, which is police, fire, garbage and the rest of general government. You can't save the kind of money that you need to save without going into the three basic services. You’re going to be going there or you’re going to be borrowing money.”

The city had appointed a task force to look for further potential savings, but it could not find enough to offset the losses from state sources.

In his State of the Community address and in direct conversations with the public in a Tele-Town Hall, Leiken argued that the need for new revenue is inescapable.

“We have not had a tax increase since 1981,” Leiken said. “I believe that the extraordinary revenue losses brought to us by the actions of this state mandate this increase at this time.”