The Observation Deck

More than one Lakewood city official has said that the proposed changes to the city tax won't impact anyone who lives in Lakewood and works in another city, because the increase in the credit for taxes paid to the other city will fully offset the increase in the additional tax paid to Lakewood. But I did some investigating, and unless I am somehow seriously mistaken, this is true ONLY if you work in a city that taxes income at 2% or more. The credit, now 50% of the first 1%, would be raised to 50% of the first 2%, as per the proposed changes to Section 128.1902 of the city code. On the face of it that seems like it would provide for the .5% credit. But if the city in which you work is not presently at 2% or more, you can't get the full credit to offset the Lakewood increase.

Let's do some math. I work in Middleburg Heights, whose city tax rate is 1.75%. Under the proposed new city tax structure, my Lakewood tax rate will increase from 1.0% (1.5% with a .5% credit) to 1.125% (2.0% with a .875% credit), an increase of 12.5% in my Lakewood city taxes even before the tax on any pay raise I might also receive. If instead I worked in Westlake, Avon, Avon Lake, Fairview Park, or Rocky River (city tax rate 1.5% just like Lakewood is now), my Lakewood tax rate would go up from 1.0% (again, 1.5% with a .5% credit) to 1.25% (2.0% with a .75% credit). That's an increase of 25% in the taxes paid to Lakewood, even if my pay did not increase at all. That's a far cry from the 0% that Lakewood officials are touting! In fact that's almost as hefty an increase as Lakewood resident-workers will see (33.3% before any pay increase).

Like I said I could be mistaken but I don't think I am. I will be at Councilman Demro's meeting tomorrow where I hope to find out that either I am in error, or those saying there will be no increase for 70% of Lakewood's residents are in error.

Like I said I could be mistaken but I don't think I am. I will be at Councilman Demro's meeting tomorrow where I hope to find out that either I am in error, or those saying there will be no increase for 70% of Lakewood's residents are in error.

Tim,
Your calculations are correct. However, it is possible for both parties to be correct. Though, I don't have any actual data to back this up, here are my thoughts. According to my research, 34 of the 57 cities/villages in Cuyahoga County currently have income tax rates equal to or higher than 2%. This equates to roughly 60% of the cities or villages. Factor in the proportionally higher amount of folks working in Cleveland (2%). Also, consider some of the cities that are less than 2% that may have a proportionally lower amount of folks working in them, such as Hunting Valley, Gates Mills, Bratenahl, etc. It doesn't seem unreasonable that 70% of residents wouldn't be affected by the proposed increase.
Again, I have no actual data to support this, but your question/concern is a fair one. I believe this information would be available to the City through RITA for 2004, however, I don't know how cooperative they would be or how readily available it is. I hope someone is able to provide some information regarding how 70% was arrived at for you. I hope to attend tomorrow as well.
PS I also work in Middleburg Heights and would be affected by the proposed increase.

I spoke with the finance director yesterday evening about this. I don’t want to misquote him, but my understanding is that the administration intended to craft an ordinance that would not affect those who live in and work outside Lakewood. He acknowledged the error and says they’re working on a revised draft of the ordinance for Council to see on Monday. Kudos to Tim Liston for crunching the numbers and exposing the inconsistency.

I won’t be at Councilman Demro’s meeting this evening, but I am aware of his position against the proposed tax increase (even if revised, I assume). In one way I share it: while there are separate capital plans and wish lists, there appears to be no compulsory long-term plan for how the city will spend its revenue in the next five, 10 or 30 years, and the excellent but nonspecific Grow Lakewood report cannot stand as our “plan.â€Â￾

At the same time, we are facing massive infrastructure repairs and rising employee health care costs, and our residents may have to decide what city services are most important to them in the near future, and what they can stand to do without. I do not envy any city administration dealing with this dilemma.

Council has until its meeting Feb. 6 to decide whether to place any tax increase on the May 2 popular ballot. It appears undecided at this point whether the ordinance makes it past council to a vote of the public â€â€￾ I gather some councilpersons are for, others are against and others await changes to the language before deciding.

As always, I encourage the input of our residents on this forum, in private communications and at any public meetings during which the matter is discussed.

Kevin Butler
(Councilman, Ward 1)
kmb@jeromelaw.com

While I agree with Tim that the information presented should be accurate and I have kudos for him, Kevin and Vic for pointing out and trying to fix the problem, I have serious problems with what we are trying to accomplish here.

We apparently want to by our tax structure discourage people from living and working in Lakewood. That is wrong. That is exactly what we should be encouraging.

If I understand it right, I pay less tax (or no more tax) if I put my business in a lower tax city than Lakewood. (not to mention property tax - which is high.) There is no benefit financially for putting your business in Lakewood.

Would it be more fair if everyone had actually less than a 1/4 increase? That way we don't discourage to the same degree living and working in Lakewood.

Kevin this is politics at its very worst and any councilperson who votes to put this levy on the ballot should be ashamed. The only reason this increase is being “craftedâ€Â￾ (as you put it) the way it is is to ensure its passage. It has nothing to do with fairness. If fairness was the goal, you would probably favor taxing Lakewood residents who work elsewhere and leave unscathed your most loyal residents, those who also live in Lakewood.

It's really a lot worse than 70% of the Lakewood handing the tab to the other 30%. Remember that Lakewood is home to many senior citizens without taxable earned income (but who vote in droves). I did a little more digging this morning, and I learned that (1) as of the 2000 census there were 5,709 Lakewood residents earning an income in Lakewood, and (2) as of 2004, there were 41,983 registered voters in Lakewood. So in fact the administration is now “craftingâ€Â￾ (albeit clumsily) a bill that lets 88% of the voters hand the tab to the other 12%.

Now I have to admit I'm pretty bitter about Lakewood income taxes, particularly after council and the voters back in November of 2004 decided to (retroactively!) tax Subchapter S corporate income. There are probably only a few dozen Lakewood residents who own Subchapter S corporations, which is why that levy passed so easily. And now you are at it again. I just don't think you should permit 88 people to capriciously target 12 others, demand some of their money, and take it for their own benefit.

Kevin I can't help but believe this proposed tax is part of an effort that began with the charter changes that were passed last November. Remember that the voters were asked to let council determine water/sewer rates without voter consent, and in exchange council would agree that any increases in income taxes would be subject to voter approval, instead of being at the discretion of council. Well for starters, I believe any city tax over 2% requires voter approval anyway, by Ohio law (which is why many cities are at 2% and only a couple are higher). So council was not in reality giving up very much. And it undoubtedly felt it could get the voters to approve an increase to 2%, especially if it could cleave the electorate 88/12 by imposing the tax only on Lakewood voters who happen to work in Lakewood. So now we have water rates going up for sure. Plus we have an income tax increase headed to the ballot, one that undoubtedly will pass because it has been so carefully “craftedâ€Â￾. Looking back at the charter changes last November, Lakewood voters need to be more careful what they wish for. I also wish Lakewood voters, if they feel the need for increased revenues, would tax themselves equally and not foist new taxes on small minorities. And it would really be nice if Lakewood's leaders would not abet this ugly process.

Lynn if you live in Lakewood you are still better off locating your business there. That way you pay city tax only to Lakewood. My business is in Middleburg Heights and the city tax I pay to both cities combined exceeds what I would pay to Lakewood only, even with the proposed increase.

What will probably happen now is that the bill will be modified to offer a credit of 100% of the first 1% of income tax paid to your working city. What makes this interesting is that Lakewood will have a terrible time reducing this credit back to 50% or 0% at a later date (as it will inevitably want to do), because (1) they gave the voters the right to reject such a change last November, and (2) it's quite difficult to "craft" a tax increase that affects the vast majority of the residents.

OK - forgive me my ignorance, but I am now mightily confused.

My understanding of the local tax laws was that every employee is taxed by the city in which the income is earned. Then upon filing their taxes at the end of the year the tax payer files with the city that they live in and the amount of credit that they receive is subject to the ordinances of the city.

Irrespective of whether someone works in the city or outside the city, they will be taxed at the city rate minimally. In some cases the tax payer actually pays more due to an amount owed in excess to the credit given for taxes paid to other communities.

To this end I don't understand how it would harm anyone working and living in the same city.

If someone can explain this in simple terms using bright colored crayons for me I'd be truly grateful

Peace,
~Charyn

Now I have to admit I'm pretty bitter about Lakewood income taxes, particularly after council and the voters back in November of 2004 decided to (retroactively!) tax Subchapter S corporate income

If I read the new ordinance correctly the income tax is retroactive until January 1, 2006 as well. This means that people will be facing a bill at the end of the year, because they couldn't have planned better.

Lynn you are correct. Somewhere in the neighborhood of 5,709 people will get a bill for .5% of their income next December, due by March 30, 2007.

Tim,

You make several good arguments against the tax increase. Although I'm sure you'll be well-read here, I encourage you to make every effort to attend any upcoming council or committee meetings to make your points known in person. That's where your power of persuasion will be at its peak. I hope others (whether for or against) attend as well.

Kevin Butler
(Councilman, Ward 1)
kmb@jeromelaw.com

Sorry Kevin, no meetings for me. First, I have two kids and my own business to attend to, not leaving me much spare time. Second, I can't stay up until all hours waiting for the public comment period which now follows (but used to precede) council business. I'm up at 5:15 AM every morning, gotta work out. And frankly it's my belief that (thanks to careful crafting) this increase will easily pass if council puts it on the ballot. There are only seven people who can prevent this levy from passing and as of today you and the other six should understand its nuances well enough to make an informed decision as to its ballot worthiness.

What council *should* do is precisely what Lynn suggested. Propose a .25% across-the-board increase and not change the credits. That's democracy. Everyone benefits so everyone pays, and the voters can fairly decide whether they want continued services or lower taxes. Plus a .25% across-the-board increase, were it to pass, would raise a LOT more money than what is currently proposed.

And hey, while you're re-crafting, how about eliminating the capricious tax on SubchapterS income? It too unfairly targets a very small group of Lakewood residents, something no neighboring suburb has stooped to. And you'll get my vote!

Kevin Butler wrote:At the same time, we are facing massive infrastructure repairs and rising employee health care costs, and our residents may have to decide what city services are most important to them in the near future, and what they can stand to do without.

As I will probably not be at the meeting tonight, perhaps someone could ask this for me. If the increase in taxes is, in fact, to be used to fund infrastructure repair, why not include wording in the ordinance restricting a portion of the money generated (set amount or %) to the Capital improvement fund or the Sewer fund? I think that may provide some of the waivering residents with a comfort in knowing that the increase will be used how it was intended.

As for services that I could stand to do without, Backyard collection is on the top of my list!

Here's the problem with having the debate now: there's no revised ordinance for us to consider. It's been in the works for quite some time, I'm told, and now it'll be revised again to fix the error Tim and Jason pointed out.

So Tim, your points about considering its nuances are good but, at this point, unripe. And Jason, you're dead-on about language restricting the use of the revenue, which was a request of several members of council â€â€￾ but again, there's no revision to that effect.

I will have trouble supporting a proposed increase when it will have been finally "proposed" just a week before the deadline to get it on the May ballot. If there's one solid decision I have made on this increase, it's that we shouldn't have it on the ballot in May.

All of which is not to say I don't appreciate this conversation; I certainly do. I'm simply wondering when we'll have, finally, the real proposed ordinance before us for consideration.

Tim,

Thanks for your investigation. Too often City Council has to rely on the numbers provided by the Administration. If your assumptions are true, then City Council has been provided with incorrect information by the Administration. I will be investigating to find out what has happened here.

Also, it is important to note that City Council will be asked to pass a newly revised ordinance with only several days to review it. I will be very frank with everyone here, I AM VOTING NO ON ANY TAX PRESENTED on February 6, 2006. How many other councilpeople will tell you exactly where they stand?

-Ryan

Frankly Ryan, you're the THIRD councilperson I've heard from that is voting no. However, you are the first to USE ALL CAPS to say so.

Steve