Virtual work could hurt income tax collections in Cleveland Mayor Justin Bibb's first budget
A big question hangs over Mayor Justin Bibb’s first budget. The new finance director can’t answer it yet, but says he is trying to.
That question is this: How many of Cleveland’s suburban commuters will take back their income tax payments to the city because they’ve been working from home during the coronavirus pandemic?
Thanks to tax law changes in the latest state budget, taxpayers can request refunds from the city where they work if they’ve been working remotely outside that city’s boundaries.
The change will likely cost the city of Cleveland. How much remains to be seen.
“We are closely monitoring this,” Chief Financial Officer Ahmed Abonamah told council on Tuesday, “and as we get refund requests from taxpayers when we get closer to Tax Day, we should have a better sense of what actual impact these refund requests will have on the city’s budget.”
Taxpayers are already requesting refunds, Abonamah said. But it may not be until the middle of May, or even the end of June, before the city has a clear picture of how the refunds will hit Cleveland’s bottom line, city Controller Jim Gentile told council.
The finance department is sifting through tax data to sketch out a “worst-case scenario” showing how much money Cleveland would lose if most suburban workers ask for their money back, the finance officials told council. That will be a big number, but likely bigger than the actual hit Cleveland will take, they said.
“This number will be an almost unrealistic worst-case scenario, because what we don’t have is how many days a week, or for the entire year, that each particular taxpayer worked outside of the city of Cleveland,” Abonamah said. “What we can do at this point is really rough, and it will be the true worst-case scenario.”
For now, the Bibb administration is assuming that income tax collections will look the same as they did last year, with about $428.5 million flowing into the general fund, Abonamah said.
Cleveland’s income tax collections fuel most basic city services, accounting for about 66% of revenue to the general fund. Collections hit a recent high of nearly $442.5 million in 2019, thanks to a tax hike approved by voters in 2016. Income tax revenue fell about 7% in 2020 to $410 million before climbing to last year’s level of $429 million.
One way for Cleveland to blunt the blow to its revenue is to encourage suburban commuters to return to work in city offices. Bibb told council Tuesday morning that he’s considering doing that with Downtown employers.
“You’re seeing these campaigns in other cities across the country, and my chief of integrated development and I have already talked about pursuing a similar campaign in Cleveland,” Bibb said. “Secondly, we also need to make sure that the product is competitive, so that folks have an incentive to come back to work.”
To do that, the mayor suggested that the city could plan more events in Downtown parks, fix up Public Square and provide public restrooms for visitors and homeless Clevelanders.
“There needs to be kind of a broad-based, collaborative approach to make sure that the product of Downtown is viable and attractive, to incent folks to come back to work as we move our economy forward,” Bibb said.