Published: Saturday, 06 May 2017 07:52
By Cheryl Splain, KnoxPages.com Reporter
MOUNT VERNON — The county commissioners will increase the county sales tax from 6.75 percent to 7.25 percent in October. The decision stems from the impact of recent state budgets, as well as requirements from the Ohio Legislature, on the county's general fund. The one-half percent increase equates to 50 cents for each $100 spent.
“This is not something we've done easily or without thought,” said Commissioner Thom Collier. “We've been looking at this since February.”
In 2008, Knox County received a little over $1.4 million in state funding. Funding declined beginning in 2009, reaching a low of about $825,000 in 2012. It rose to about $1.25 million in 2016. Projections for 2017 and 2018 are $1 million and $750,000, respectively.
The reduced funding comes from cuts in local government funds, the commercial activity tax and a tax on Medicaid managed care providers. Additionally, interest income declined and state projections from the casino tax did not materialize. At the same time, the Ohio Legislature increased the requirements for public defender offices, county election boards and presentencing investigations, driving up those costs.
In looking at funding for counties, the state evaluates what is called “capacity.” The capacity formula looks at whether a county has reached its taxable limit, whether raises were given and the carryover amount from year to year. “We've been fiscally responsible and not raised taxes, our raises have been relatively minor, and all counties have to have a carryover because you need money to function in January and February until tax revenue starts rolling in in March and April,” said Collier.
“The sales tax capacity is looking at whether we are taxing as much as we can. If not, we are penalized,” said Commissioner Teresa Bemiller. “The state is looking to make themselves whole. The state's not wanting to revenue share with counties.”
“It'd be one thing if our costs continued to decrease like the funding, but our needs continue to increase. So it's impossible to keep our nose above water,” said Commissioner Roger Reed.
“The rainy day fund went from 87 cents when Gov. Kasich took office to $8 billion,” said County Auditor Jonette Curry.
“And they won't touch it,” said Reed. “They call it their stabilization fund. I asked Kasich's representative why not dip into it? I asked him how do we stabilize our fund?”
Another factor on the expense side is that since the recession hit in 2008, the county has deferred capital improvements on its buildings. “We have $5.7 million worth of capital improvements needed; that's an alarming number,” said County Administrator Jason Booth. “With revenue going down, you are never going to get to these core issues.”
“In 2009 and 2010 we cut [budgets by] 20 percent,” said Bemiller. “We have never gone back and restored that. We at that point felt we were tightening our belts and felt people were, too. We tried to do what was needed to keep departments operating.”
The general fund has discretionary (optional) and non-discretionary (required) accounts and supports more than 30 departments. Alternatives to a one-half percent increase include moving some discretionary spending out of the general fund, reducing county services and enacting just a one-quarter percent increase.
Discretionary spending accounts for about $500,000 and includes departments such as OSU Extension and Knox Soil and Water. They could be moved out of the general fund and paid for through an agriculture levy. Bemiller said the commissioners are reluctant to do that because those organizations are important to the county.
“We cut their budget 20 percent in 2009 and again in 2010,” she said. “While we cut them, we still maintained them at a high level. Many counties discontinued funding completely.”
“When we start talking about reduction in services, now we're talking about cutting the things that we really need, like deputies,” said Collier, adding that with the exception of the judicial departments, most offices are at the same staffing level or lower than what they used to be.
“A quarter percent rate might help us to get through the tax cuts from the state, but it won't allow us to do what we need to do,” said Collier.
“We will be dedicating a certain amount of these funds to the permanent improvement fund,” said Reed. “The money from a higher sales tax is not for general consumption, and we've made that clear to department heads.”
“The commissioners have been very fiscally conservative; they have done everything to keep their neck above water, but you just can't do that anymore,” said Booth.
“Once we use this one-half percent option, we have no other options,” said Collier, noting that many counties have already increased their sales tax.
“We don't want to see some of these options, but we'll still be conservative in our spending, even with a higher tax,” said Reed. “We'll take care of the things we truly need to take care of.
“I've always looked at that one-half percent as our savings account,” he continued. “You don't like to dip into your savings account, but now we have to, and we have to be very careful how to spend that money.”
The earliest the tax could go into effect is October, and the county will not receive any money until December. The one-half percent increase is projected to raise $2 million to $2.5 million. “Like any revenue stream, until we get a couple of months into it we won't know exactly what we've got,” Curry. “It will take us a year to see what the revenue will be.”
The commissioners set public hearings for Thursday, May 25, at 11 a.m. and Thursday, June 1, at 5:30 p.m. to hear public comment on the sales tax increase. The hearings will be held at the commissioners' office at 117 E. High St., Suite 161.
Booth compiled a fiscal analysis for the county showing revenue and expenses between 2005 and 2018. Following are the areas affecting the county the most.
Investment income rose from $1.1 million in 2006 to just under $1.4 million in 2017. It declined to $200,000 for 2010-2012, dipped under $200,000 in 2013 and 2014, and rose to $300,000 in 2016. “There was a slight uptick in 2015, but it's not forecast to be at pre-recession levels,” said Booth.
Discontinued Tax on Medicaid Provider Organizations
The county lost $500,000 a year due to the federal government deciding that the Medicaid provider tax is unconstitutional. Because of the capacity formula, the state is proposing a one-time payment of $472,792 to Knox County to make up the shortfall. “We were told to spend it wisely,” said Reed.
TPP and CAT
Beginning in 2006, the state phased out the tangible personal property tax and replaced it with a commercial activity tax. In 2007 revenue was just under $400,000; it declined to $300,000 in 2010 and $150,000 in 2011. The county has received no CAT revenue since 2011.
Local Government Fund
From a high of $1.5 million in 2006, this revenue stream dropped to $500,000 in 2016.
Projections were for the county to receive $900,000 in 2013, rising to $1.25 million in 2014 and thereafter. Actual revenue has been $700,000 from 2013 to now. “This was put in place to replace some of the other taxes they were dropping and to 'make you whole,'” said Booth. “You can see that isn't happening.”
Public Defender Office
Expenses increased from slightly over $300,000 in 2010 to an estimated $500,000 in 2017. State reimbursement was at 35 percent between 2010 and 2012, 40 percent in 2013 and 2014, and peaked at just under 50 percent in 2015 and 2016. Reimbursement for 217 is at 40 percent. “Reimbursement was never supposed to be below 50 percent; it's never gotten to 50 percent,” said Collier. Last year, the state required parity between public defenders and county prosecutors but did not provide any more funding.
The expenses for the county's justice departments (common pleas court, juvenile court, sheriff's office, public defender and county prosecutor) increased over $2 million between 2010 and 2017. “We really don't anticipate that plateauing,” said Booth.
“The opioid problem is driving a lot of our problems with the judicial system,” said Reed.
When the state changed the requirements as to who can handle presentence investigations, the county had to hire an additional adult probation officer; the increased caseload also required an additional detective. “I've always said we're partners with the state; we collect fees and taxes for them, but most of the time they give us unfunded mandates,” said Bemiller.
Kasich's upcoming budget calls for felony 4 and 5 offenders to be treated locally rather than going to state prison. The state will reimburse counties $23 a day; Knox County's daily cost for an inmate is $63.
“We have reached capacity in 2016 in the Knox County Jail due to opioid problems,” said Bemiller. “So we don't know what we're going to do. Contract with other facilities? Expand our jail?”
“If you reach the point of capacity in our jail, 110 percent is capacity, then the judges or the sheriff could release someone from the jail,” said Reed.
Curry said the county will also lose federal dollars because space is used by local F4 and F5 offenders rather than having space available for federal prisoners. Federal reimbursement is higher than the $23 proposed by the state.
“The state says yes, we will reimburse you, but when you're only reimbursed half or one-third, that's not reimbursement,” said Collier.
To deal with the drug issue, the county has added a nurse and mental health professional to the jail staff and bought a scanner to identify hidden contraband. “The liability if you don't have those things in place is huge,” said Collier.
Justice department expenses total more than all other expenses in the general fund. “The other departments are really holding their own,” said Booth.
“It points out where the problem is,” said Reed.
Collier noted that the opioid problem is not unique to Knox County.
Board of Elections
Election costs in 2010 were around $375,000; in 2017, the estimated cost is $500,000. In 2016, a presidential election year, costs were just under $700,000. “The costs have skyrocketed, and the commissioners have no control,” said Booth.
“The state constitution says the state shall provide, but it is the counties that bear the burden,” said Collier, noting that the state sets mandates on ballot availability, hours the BOE is open, staffing and other issues, but provides no funding for those mandated costs.
The state has yet to set reimbursement rates for voting machines the county bought in 2016 for $500,000. Collier said a bill introduced in the state legislature calls for $1 million in reimbursement to be divided among Ohio's 88 counties. Another proposal calls for each county to receive $25,000.
Collier said that in the early 2000s, the county spent $2 million on improving and maintaining buildings. That dropped as low as $200,000 in 2010. “This is the area that has suffered,” said Bemiller.
Booth's analysis showed the county buildings need over $5.7 million worth of capital improvements. Upgrades and improvements include HVAC, boiler and elevator replacements; electrical, plumbing and sewer; flooring, plaster and lighting; security systems, jail appliances, flooring, parking lot upkeep and concrete work; and a new roof for the Service Center Building (117 E. High St.), which received an F rating three years ago.
“If you defer maintenance, you start getting interior damage,” said Reed. “It's something you can't put off forever.”
Overall Expenses vs Revenue
In 2008 and 2009, expenses outpaced revenue. From 2010 to 2016, revenue was higher than expenses. “In 2017 and 2018, it's starting to go back to the trend of expenses outpacing revenue,” said Booth, adding that when revenue topped expenses between 2010 and 2016, no raises were given from the general fund and vacant positions were not filled. “Now expenses are outpacing revenue and we don't have any surplus to cover it.”
Sales Tax Breakdown
Of the current 6.75 percent tax, 5.75 percent goes to the state, .75 percent to the county's general fund and .25 percent to the Knox County 911 center. The county has not increased its general fund portion since 1994.
The state's portion of the sales tax increased from 5.5 percent to 5.75 percent in 2013. In his upcoming budget, Gov. John Kasich is proposing an increase from 5.75 percent to 6.25 percent.