Huron proposing income tax increase

HURON — Typically, a tax increase impacts everyone living in a particular political subdivision. But one scenario laid out by Huron officials shows a rate hike could mean some residents don't pay a cent more than they do today — or, in some cases, even receive a rebate. During a finance committee meeting on Tuesday, officials introduced the pathway toward a potential income tax increase, possibly elevating from 1% to 1.75%. Think of this tax as a fee governments can impose on businesses located and residents working within a specific jurisdiction. It's a major revenue generator for governments to carry out public services. While in the preliminary stages, Huron residents should understand the following: • Officials only made the initial announcement about this proposal. No formal action occurred. • Before any increase can occur, city council would first need to approve a resolution of placing this ballot measure before voters in a citywide election. • An extensive public process would occur to inform residents about the decision. • Residents, then, would ultimately decide whether or not to raise the income tax in a vote, which would likely occur in November's election. Taking time to talk about the tax Huron officials provided a question-and-answer factsheet about the potential hike so people can better understand what's at stake. Context and quotes are from a collection of city officials, including city manager Matt Lasko, service director Stuart Hamilton and finance director Cory Swaisgood: Q: Why is a tax needed? A: During the 2024 budget cycle, those representing Huron's finance committee and city council recommended staff members begin exploring options to increase revenue streams. This would help offset shortfalls in several city-managed funds. Staff came to a consensus on increasing the local income tax from the state minimum of 1% to 1.75%. They also included a provision to offer a credit for qualifying residents. Q: Huron just approved a record-breaking budget. Why would it need financial help? A: Entering 2024, Huron officials are working off a $6.4 million everyday operating budget. It's the highest amount in Huron's history. The budget funds dozens of daily services residents depend upon. Income tax represents a major revenue source. But, upon approving the budget, officials did express concerns about a disturbing trend. More city money "from the general fund is becoming necessary for operational needs in areas that are traditionally supported by non-general fund revenues, such as state taxes and levies." For instance, Huron's general fund covered an additional $225,000 toward parks and recreation as well as streets for operational needs in 2023. "This is not a sustainable practice for an already lean budget. We are noticing negative revenue trends and inflationary cost increases in many operational budgets, including fire, street and parks." Officials explained two forces driving the need to explore additional revenue sources: • At 1%, Huron's government applies the state's minimum income tax rate, and it hasn't increased since implemented around the 1960s. Additionally, it only employs one levy, for fire operations, first approved in 1999. Furthermore, the millage or taxing rate for this fire levy hasn't changed since its creation 25 years ago. "These two sources of funding without increases in revenue would ultimately not be enough to cover inflationary expenses, certain capital projects and, in some instances, general facility maintenance costs. It is a testament to our staff that they have provided such a high level of service through the years with a state minimum income tax and only one levy." Conversely, "Many political jurisdictions regularly need to increase income taxes or secure levies to pay for certain departmental needs, such as local roads, parks and recreation and safety services." Meanwhile in Huron, "The city has several departments and funds that have limited means of funding and have, historically, been subsidized by a great deal through Huron's general fund. There are few, if any, outside funding streams to aid with items like local street resurfacing, police and fire operations and equipment, parks and recreational programming; and major stormwater upgrades." Q: Why propose an income tax increase as opposed to a levy? A: "The goal of any tax or levy is to minimize its effect on residents. The city of Huron has remarkable employment demographics that place the majority of the income tax burden on non-residents." A levy, on the other hand, "affects significantly more residents and all individuals who own real estate with the city. Moreover, the city would likely need to consider multiple levies for different city functions versus a single income tax increase." Q: How much does income tax generate today? What would it go to with an increase? A: Here's a quick look at the figures: • Today's income tax numbers generate about $3.8 million a year. • Based on today's figures, increasing the income tax from 1% to 1.75% would generate an additional $1.8 million a year. • Together the amount would total $5.6 million to fund daily operations and major capital projects throughout Huron. Q: Who pays Huron's income tax? A: Based on the city's 2023 income tax collections, approximately 75% of income taxes are generated by non-residents who commute to Huron for work. Thus, in an election, residents could make a decision on a tax largely in place for non-residents. "These individuals are the ones who will pay the overwhelming majority of the proposed increase." More specifically, those who would experience an income tax increase would be: • People who both live and work in Huron • People who live in Huron but work in a non-taxing jurisdiction, such as Huron Township • People who live in Huron, are retired but have investment income "The intent of this structure is that 100% of the income tax increase would be invested in Huron while only 25% would be paid by Huron residents." Note: Huron residents always owe a municipal income tax to the municipality where they work. Some call this a workplace tax. Q: How would the reduction or tax credit portion work? A: This proposal would include a credit for some people. This means if the income tax increase went into effect, then they would actually pay less or wouldn't see a change to their taxes. Residents who would see a decrease or no changes to their taxes would be: • Those who live in Huron but work in a different taxing jurisdiction with a similar or higher tax rate than 0.75%. "For example, today, if you live in Huron and work in Sandusky, you pay 1.25% in Sandusky, and you pay 1% in Huron for a total of 2.25%. With the credit, you would pay 1.25% to Sandusky and only 0.5% to Huron, taking you to a total of 1.75%. This saves the resident the other 0.5% to Huron." • Those who live in Huron and are retired, collecting Social Security, pensions or retirement benefits that are non-taxable. Q: If approved, how would the money be spent? A: "These funds would be used to stabilize certain departmental operations and allow the city to fulfill the needs of our capital equipment replacement schedule and capital improvement plan." Departments and initiatives standing to benefit from additional revenue income would include police, fire, parks and recreation, stormwater, street resurfacing and capital/large-scale projects. Additional projects the city could also undertake would be assuming responsibility of tree and sidewalk maintenance in right-of-way areas along with implementing a long-awaited citywide quiet zone as it applies to trains. Q: How will the public be engaged? A: If the proposal goes through, then officials promise to undertake an exhaustive educational campaign — comprised of council work sessions, community open houses and other ways, such as attending homeowner/condo association meetings — to present data, answer questions and solicit feedback before November's election. Additionally, the city will develop an online income tax estimator so individuals can determine what financial impact, if any, the proposed income tax increase will have on their eventual household income tax. "It would be critical to ensure our residents this issue in depth. We just ensure they understand that they would be responsible for a lesser share of the increase compared to non-residents." Q: What would happen if the tax issue wasn't approved? A: The general fund would continue providing bailouts to our various departments, ensuring no shortfall exists. But that's only a viable option until around 2026 or 2027. If there's no income tax increase within this window, then the city would likely have to start cutting projects, reducing services and possibly execute layoffs. Q: Why should someone vote for this? A: Here's a statement, in full, from officials. At its most basic level, an increase would be a remarkable opportunity to solidify the financial stability and future of the city for the next 15 to 20 years in a manner where every single resident would benefit from how the fund would be used while having to pay for a fraction of it. This could be more than simply a good economic deal for our residents. The city has made tremendous progress over the last three to four years. We have: • Increased our transparency to our residents • Overhauled many codes to make doing business in the city easier • Created our first-ever charter review commission to empower residents so they have a greater say in how the operations of the government are carried out • Planned for and completed amazing invents throughout the city, the majority of which were paid using county, state and federal dollars versus local tax dollars This would include, but not limited to: • New tennis courts • A state-of-the-art fish cleaning station • Reconstruction of Sawmill Parkway and Berlin Road • Expansion of our water plant • The institution of bike lanes to promote recreation opportunities and enhance safety for bicyclists and vehicles • The implementation of a body-worn camera program in the police department • The revival of the K-9 program in the police department • Designing a new 2 million-gallon water tower and secondary water intake to enhance water security for our customers • Designing the first phase of our South Main Street streetscape, to be constructed in 2025 • Designing a major sidewalk connectivity project, connecting Huron to major subdivisions in Huron Township, to be constructed in 2025 There is so much momentum in Huron, and now would be the time to bet on and invest in ourselves to ensure the growth and stability of this great community for the next 15 to 20 years. Our residents expect and deserve a high level of service from the city and top-notch amenities, and this plan would ensure those exceptions are met and exceeded.