YOUNGSTOWN — Interim Director of Finance Kyle Miasek provided city council with a glimpse into the city's financial future this week during a meeting of the finance committee.
“Everything hinges on recovery and employment,” Miasek said.
The city's budget in 2020 was about $182 million. It is expected to roll a general fund surplus of about $6.5 million into this budget year, Miasek said. Looking forward to the 2022 budget, some factors in 2021 will determine how the city will move forward.
Miasek said the city originally anticipated an income tax shortfall of about $2.4 million from the city’s projected $46.2 million in 2020 income tax. That deficit was erased — and became a surplus for 2021 — due to one-time revenue windfalls provided by federal and state governments, workers’ compensation rebates, savings due to furloughs and departments reducing their spending throughout the year.
The largest one-time funding bonanza was through $5.3 million in CARES Act funds, which allowed the city to cover expenditures in the police department, fire department, health department, finance department and 911 dispatch, he said.
The city also received about $2.8 million in three workers’ compensation rebates from the Bureau of Workers’ Compensation. The city does not expect to receive another rebate in 2021, Miasek said.
The city also generated about $400,000 in savings from employees who were asked to go on furlough.
Miasek said there will be some obstacles when it comes to planning the 2021 budget. A baseline for the budget is expected to be developed by Jan. 25 and will be approved by council by the end of March.
The most prominent obstacles involve the income tax revenue budget stream. Due to the loss of employment because of the pandemic, the city lost $3.1 million in income tax. But reducing the baseline revenue total for income tax from $46 million to $43 million for the 2021 budget and using the surplus to make up for that loss may not entirely solve the problem.
Senate Bill 352 would return Ohio's income tax guidelines to pre-pandemic rules, and that could cause the city's income tax revenue to hemorrhage even more. Miasek said that is the one area the city does not yet have an answer to — nor control over.
In March, House Bill 197 passed and kept city employees paying income tax even though they worked from home. Senate Bill 352 would return Ohio's income tax guidelines to pre-pandemic rules where income tax is assessed in the community where work is done. Since many people are working from home — and they live outside Youngstown — the result would be a further decrease in the income tax the city receives.
The city is expecting to know by early February if it has to refund income tax to city employees. Miasek said the decision could be delayed until April, which would also give cities in Ohio more time to find ways to make up for the income tax loss.
Miasek estimated that if 10 percent of employees are affected across the city, then the additional loss of income tax revenue would be $3.3 million. If it were 20 percent affected, it would be $6.6 million.
Right now, the city does not have any benchmarks on how many people could request a refund.
"We don't have any historical data on this," Miasek said. "It's never been done before."
Going forward, so much of the city's financial success hinges on whether employment rates return to pre-pandemic levels — and soon. Miasek noted that in the first three months of 2020, the city was on target for income tax revenue for the year. Then the city began seeing an impact of the pandemic in April 2020, and revenue declined for the remainder of the year.
Now, with mass vaccinations on the horizon, the city is hopeful for a return to normal.
“... It's going to be difficult to get through probably March,” Miasek concedes. “I'm hoping that the pain lessens and we start to see some employment growth, and those numbers improve.”
If employment does not improve and the city has to administer income tax refunds, then the $6.5 surplus could be exhausted. Miasek said the long-term strategy would be to reserve what remains of the surplus for the 2022 budget.
“Our short-term is to hope that we can get through 2021," Miasek said.
Miasek said the baseline for the 2021 budget will include payroll, benefits and funds to sustain the departments. The city departments will tell the finance department what additional expenses they want for the year, but the money won’t be allocated to the department right away.
“We're going to set them on the sidelines because we can't fund them right now because we have so much uncertainty, but at least we'll know what they want,” Miasek said.
If the city begins to see improvements in finances, then the additional finances will be put back into the budget for the departments.
OTHER BUDGET CONSIDERATIONS
Councilwoman Samantha Turner, 3rd Ward, asked Miasek how the budget would be impacted if the city would have to pay for the demolition of Anthony’s on the River that happened in August 2020.
The demolition was completed four days prior to city council voting on an ordinance to approve the $48,000 funding for the demolition on Aug. 26. City council members rejected the ordinance in a 4-3 vote on Aug. 27.
Miasek said there is money set aside if the city has to pay for the demolition, but it has not been expended yet since the city is waiting for a decision from the court.
Law Director Jeff Limbian said there is an increased level of frustration from the owner. Unless something is done quickly, there will be further litigation. There have been two lawsuits filed against the city for the emergency demolition.
Councilwoman Laura McNally, 5th Ward, asked Miasek if there were any issues with the 2020 budget that were not related to the pandemic.
Miasek said there were no major issues with different city departments since all were asked to reduce spending due to the pandemic.
Miasek said it was important to note that the fund for the water department is already starting to see a surplus of about $700,000 due to the changes in the department's funds in 2020.
To fund environmental sanitation projects in 2017, the city reduced water bills in the city by $10 and raised garbage bills by $10. As a result, the water department lost about $2.5 million in revenue each ensuing year.
The water and garbage bill adjustments were reversed starting July 1, 2020, to raise water department funds and avoid employee cuts.
American Federation of State, County and Municipal Employees Local 2726 also agreed on no general wage increases for 2020 and 2021 to allow the city to better analyze the financial situation.