City Commission - public_hearing

Order.

Call the roll.

Mr. Ricketts?

Here.

Mr. Rigsby? Here. Mrs. Tackett? Here. Mr. Wallace?

Here.

Mr. Rue?

Here. Has proper legal notice been given for this hearing?

Notice of a public hearing for the 2027 tax budget was published in the Springfield News Sun, a newspaper of general circulation within the city. Attached here to is a true and correct copy of the legal notice published on May 24th, 2026. I move that the communication be ordered, received, recorded in the minutes, and filed.

Second. Motion's been made and seconded. Clerk, call the roll.

Mr. Ricketts.

Yes.

Mr. Rigsby.

Yes.

Mrs. Tackett. Yes. Mr. Wallace. Yes. Mr. Rue.

Yes. Staff report.

Good evening, Mayor and Commissioners. First, I'd like to acknowledge a couple of key finance staff members at the meeting tonight that play a vital role in producing our 2027 tax budget, among many other things. We have with us Adam Lipp, who is the city's treasurer, and Nikki Weber, who is the city's assistant finance director. So now jumping into the 2027 tax budget, tonight marked the formal beginning of our 2027 budget process with the presentation of the tax budget. In many ways, this is not a new conversation. It is an update on the financial trends and challenges we have been discussing through the 2025 and 2026 budget cycles and during our commission retreat over the past two years. We remain at a critical point financially. Income tax revenue, the primary source of funding for our general fund has flattened or declined after several years of strong post-pandemic growth. In 2021 and 2022, income tax revenues increased by more than $9.2 million combined. By comparison, from 2023 through 2026, year to date, so this will be taking three and a half years compared to two, revenue growth has totaled only about $4.1 million, a decline of more than 55% from those post-pandemic rebound years in 2021 and 2022. I know that this is something that we've discussed a lot, but I just want to emphasize the magnitude of that. So another way to understand the shift is to consider where we might be had those growth trends in 2021 and 2022 continued. Had that pace continued, annual income tax collections could have approached $75 million by 2026, generating more than $26 million in additional revenue since 2022. Instead, that actual growth is that $4.1 million, roughly $22 million less than the post-pandemic trend would have produced. I think this also highlights the difficulty in predicting income tax revenue trends. And also, we'll talk about it more in the tax budget presentation, our heavy reliance on it and predicting that trend with these numbers, how challenging that can be. while that level of growth was never guaranteed the comparison illustrates how dramatically that revenue environment has changed in just a few short years often outside of our control and city government because income tax funds the majority of general fund operations this slowdown has significant implications for the city's ability to sustain services demand for public safety infrastructure maintenance code enforcement and other core services continue to grow while inflationary pressures have increased the cost of actually delivering those services in short revenue growth has slowed dramatically while the cost of providing services continues to rise several factors have contributed to this slowdown including permanent changes to remote work tax laws State level impacts related to net profit tax liabilities and net operating loss, which we've discussed. And that continues to be part of that broader challenges that have impacted us at the state level that are outside of our control and broader economic uncertainty. As a result, the general fund is under considerable strain. In recent years, we have relied on one-time resources, including American Rescue Plan Act funds, property sale proceeds, and transfers from other funds to help balance the general fund. Without those temporary revenues, the service reductions we have already experienced would have occurred sooner and more dramatically. Because we do not have a separate rainy day reserve, changes in income tax collections are felt immediately in our day-to-day operations. There are positive developments underway. Our transition to the Regional Income Tax Agency, or RETA, has strengthened tax compliance and collections. We see that through our withholding revenue, where we are seeing declines in our net profit collection. And new residential development and economic investment continues across the city, which we all see every day. These efforts are encouraging, but they will take time to generate meaningful recurring revenue that we can rely on. Until then, we must remain disciplined, focused on core services and committed to identifying efficiencies wherever possible. It's also important to understand what tonight's discussion for the tax budget actually represents. The tax budget is fundamentally a conversation about revenues and the financial environment that we expect to face in 2027. The discussion about expenditures will continue throughout the budget process and culminate with the hearing, the public hearing on the city manager's 2027 budget later this year in November. What the tax budget makes clear is that we have significant work ahead of us. Our responsibility is to make thoughtful, sustainable decisions that preserve essential services, align resources with community priorities and position the city for long-term financial stability. The tax budget simply provides an early look at our revenue outlook for 2027 and serves as the foundation for the budget discussions that we will continue to have in the month ahead. On this slide, we're just summarizing that annual budget timeline in May. We are working on the tax budget, bringing that before you in June. Ohio revised code requires that we adopt that by July 15th. And again, as a reminder, the tax budget is a revenue document. then in August September October we are working with departments on their operating budget for expenditures that they will submit going through many meetings looking at what those projections are for our actual budget and comparing revenues and expenditures the city manager and I work together extensively and with you In October and November, our charter requires that we have the city manager's preliminary budget on file by November 1st. So that's the target that we are hitting each year for our overall budget. Mid-November, we have two budget meetings of the evening with commissioners for input on the budget. And then early December, we bring that budget back for the public hearing that I mentioned earlier, similar to this, but that's a focus on our operating budget. And then mid-December, we bring back that annual appropriations ordinance, which sets the budget for the following year, the expenditure budget. And then in the following year, in early spring, in the March timeframe, we provide an update on where we are at retreat. So again, tonight we are talking about revenues. The tax budget is a revenue document. And again, we are doing this in June of 2026, talking about 2027 revenues, trying to forecast those out because Ohio Revised Code requires it and requires that certification by July 15th. So the tax budget establishes or requests millage for real estate tax collections, which I'll talk about on the next slide. It establishes the base of revenue estimates for the upcoming budget year. And then it combines estimated receipts with estimated end-of-year unencumbered cash balances. Receipt means the revenue that we expect to receive and then our end-of-year cash balances, thereby establishing the maximum appropriation capacity in the upcoming appropriations budget. simply it sets that limit for cash that we have on hand that we can appropriate for expenditures in the following year for the general fund again the main dominant source of revenue that we are reliant upon is income tax however the city does receive real estate taxes for a few specific or earmarked purposes for the special police levy at three mills we are expecting to receive close to four million dollars to put that into perspective the overall operating budget for police including capital expenditures is roughly 21.3 million dollars so this close to four million dollars offsets that overall expenditure There's a .6 mil levy for police and fire pension debt, bringing in roughly $800,000. That offsets our pension obligations. And then the Conservancy District at $400,000 is simply a pass-through. you'll notice here at the bottom the 2026 total assessed valuations for property are at 1 billion 330 million that number is up about 304 million or 30 percent compared to 2025 and attributable to new housing stock and property evaluations from the county So next we'll move into general fund estimated revenues and discuss those more in depth. Again, our reliance on income tax as the city's primary revenue source accounts for 77% of general fund revenues here at $45.8 million. At the time the tax budget was prepared, income tax collections were down 4%. If we were to annualize that, that's $2 million annually. Annually, a percent is equal to about a half million dollars. Based on that trend, we have projected a 2% or $1 million overall decline in total income tax revenues to be collected for 2026 compared to what we collected in 2025. The 2027 forecast assumes that income tax revenues will be flat with 2026. Interest earnings looking here at $940,000. Those are projected to decline by approximately 25% in 2027, reflecting lower cash balances and continued uncertainty in the interest rate environment. looking at fines licenses and charges there at six percent that includes things like building permits and municipal court fines other shared taxes which is less than one percent here is liquor cigarette and a newer tax that the city is collecting from the state level for adult use cannabis cannabis that's bringing in roughly an additional four hundred thousand dollars each year Then the local government fund, just a reminder for commission and the audience, at its highest, combined with the estate tax generated over $5 million annually and accounted for over 10% of our revenue in the general fund. As you see here with that $2.5 million, that's now at 4%. It essentially equates to tens of millions over the past decade that the city would have received had those changes to the local government fund not occurred. And looking at all other at $5.9 million for the 10%, this is reimbursements from other funds back to the general fund for administrative services provided to other funds. So for example, engineering is paid out of the general fund, water and sewer, are reimbursing the general fund for those engineering activities related to that. Similarly, community development activities are paid for out of the general fund. So the grant funds that we rely on to support those activities like the community development block grant and those HUD entitlement funds are part of that $5.9 million that is coming back to the city through those grants. As part of the tax budget process and looking at revenues, we are also required to prepare a preliminary expenditure forecast for the upcoming year. For 2027, the forecast assumes no changes to current operations, a 4% increase in personnel costs. And defining what those personnel costs would be is salaries, health insurance, pension expenses, and things like that, and a 5% increase in all of our other operating expenditures. Under those assumptions, projected general fund expenditures total approximately $63.4 million compared to the projected revenues in the general fund that you see up here of $59.4 million, resulting in a projected gap of roughly $4 million in 2027. It is important to emphasize in providing those numbers that this is not a proposed budget. Rather, it is a planning tool that highlights the financial challenge before us. Certainly a $4 million gap is not a sustainable outcome, nor is it a budget recommendation as we move into 2027. It simply illustrates the magnitude of the adjustments that will be necessary as we develop the actual operating budget, the city manager's budget for 2027. The expenditure decisions necessary to close the gap will be developed and presented later this year as part of the city manager's 2027 budget and in those conversations with commissioners and department heads as we prepare that. For tonight, this forecast helps frame the financial environment in which those decisions will be made. you've already seen on the real estate taxes slide the special police levy here and looking at our other major operating and capital funds includes the property tax amount along with a subsidy from the general fund and so that's bringing in 4.1 million dollars for those operations utility funds consist of water sewer and storm water charges for services and we have increased that in the tax budget by three percent or roughly a million dollars we will be coming back to commission in the third quarter as we prepare our rate models for the recommended rate increases to sustain the operation of those services for the coming years as currently the last legislated increase took place on January 1st of 2026 so that is something that will be coming before commission at a later time the street fund which is mainly gasoline tax funds are streets and traffic divisions you see that here at 4.8 million dollars And then the permanent improvement fund, which we see here at close to $5.6 million, is supported by 10% of every income tax dollar. So our charter, as a reminder, requires that every dollar that comes in in income tax revenue, 90% of that is distributed to the general fund and 10% goes into our permanent improvement fund for those capital expenditures. This final chart highlights just how dependent the city is on income tax revenue to support general fund operations. For 2027, income tax revenue is projected to account for, again, approximately 77% of all general fund revenues, making it by far our most significant revenue source. And I'm going to sound repetitive here, but is what funds our core services that we carry out. So as you review the trends here and see the different percentages year over year for that reliance on income tax as it relates to our overall general fund revenue, it's important to recognize that several years include one-time revenues, reimbursements, federal relief funding, property sales, or other accounting adjustments such as the transition to RETA in 2025. that affect year over year comparisons. While those items influence individual years, they do not change the broader story for that reliance on income tax. Its performance directly impacts our ability, again, to fund those essential services such as police, fire, EMS, street maintenance, code enforcement, parks, and community development. And we remain grateful to Springfield voters for their continued support of the city's income tax levy. We would certainly be having a very different conversation today and be in a very different place, if not for the support of our income tax levies. Again, that remains critical to maintaining the services that we currently provide to our residents and that they rely on every day. As we conclude tonight's discussion, the message is straightforward. Revenue growth has slowed significantly. Financial pressures continue to increase and the city must carefully plan for the future. The tax budget provides an important first step by helping us understand the revenue environment that we expect to face in 2027. And again, we'll return in the fall with the city manager's 2027 budget, which will be a balanced and sustainable financial plan designed to preserve essential services, maintain fiscal responsibility, and continue moving Springfield forward together. And with that, I am happy to answer any of your questions.

Thank you. Could you highlight a couple of things that, once again, that we have not, things that came to us from different laws, things like that, unfunded mandates that have caused where we're at right now? Could you highlight that again?

Certainly.

So as it relates to... Just to be clear, like when we went, when the local government fund shifted drastically years ago. Now that was one thing that affected municipalities across the state. Yes.

So back in 2012, when the local government fund was cut in half, the estimated impact to Ohio municipalities was a billion dollars annually. and certainly that is that has not been restored it is something that we to continue to advocate for and essentially what that has done has made municipalities more reliant on income tax revenue and in speaking to that reliance on income tax revenue we have the current challenge in front of us with the state level changes to net profit collection and allowing businesses to fully recognize 100 percent of their net operating loss when they file their taxes so that results in less revenue for us and large large refunds back to those businesses when they've paid their estimated taxes because they want to be in line with that. But then we get requests for large refunds, which makes it very difficult to track. One of the things that we continue to monitor is there are conversations at the state level currently. Right now, there's a five-year look-back period for those net operating losses on net profit returns. The conversation at the state is to remove that five-year look-back period and make it indefinite.

So could you just make that as simple as possible? Explain that as simply as possible.

So if that were to be removed.

No, I'm talking about the net gain and the collections and things like that. How that just as simply as you can explain that to somebody doesn't have their heads in numbers all the time and understanding.

Certainly. So our tax collection. Roughly the city's breakdown is 85% is withholding. So that is the taxes that you pay as an employee to the city if you live or work in the city of Springfield. 15% of that is net profit, which is taxes on the profits that businesses earn. And so when they are filing their annual tax returns, being able to look back indefinitely, at this point it's just five years, to look at their net operating losses, which does include those pandemic years. then they are able to offset their profits to reduce the tax liability that is owed to the city. Effectively, what that does in allowing that five year look back period to cease, the five year look back period already makes that very challenging for us. but effectively eliminating 15% of our income tax revenue, if that's what that resulted in, is certainly significant for the city. And that part of the trend that we've started to see going into this year, When through April, our net profit collections were down 30%, although withholding was holding steady around a 4% increase.

So to your understanding, what is the reason that is happening? What is the reason that is popular to pass that in the state?

The state could likely look at that as promoting businesses to locate in the state of Ohio. What I would advocate for is if we are doing that, we're not seeing the changes in withholding that offset that change with net profit is that we have to look at things like restoring the local government fund and other ways that the state who has a historic rainy day balance can fund the local work that's happening that is most important.

Thank you for doing that. Other questions from commissioners?

Comments from the audience on this hearing?

Ms. Diane?

I HAVE TO I JUST HAVE TO SAY KATIE THANK YOU SO MUCH FOR YOUR PRESENTATION THAT HAS GOT TO BE YOUR JOB HAS GOT TO BE THE HARDEST TO DO TO JUGGLE 18 DIFFERENT BALLS AND THEN HAVE THE STATE SAY WELL HERE'S FIVE MORE TRY THIS AND THEN A WEEK LATER SAY WELL HERE LET'S TAKE THREE AND ADD FIVE SO I APPRECIATE YOUR CANDOR AND PRESENTING THE INFORMATION TO US IS THE TOUGH situation that you find yourself in. And I don't envy Brian and any of you with the decisions that you have to make. But I do have a couple of suggestions. The hardest thing for citizens in the city of Springfield is to look at your salaries and go, oh, really? So that would be a suggestion from a citizen to take a look at a rollback and tell the citizens we're going to do the hard part. Now it's your turn. And then we'll pick up the slack and do the hard part as well. Thank you.

Thank you. Is there a motion to conclude this hearing? So moved. Second. It's been moved and seconded. Clerk, call the roll.

Mr. Ricketts?

Yes.

Mr. Rigsby? Yes. Mrs. Tackett? Yes. Mr. Wallace? Yes. Mr. Rue? Yes.