Remote work could cost city $25M per year
Large number of Dayton workers at home may cause tax shortfall.
Dayton could get more than $147 million in federal aid from the new $1.9 trillion coronavirus relief bill, but city leaders are still very worried about large revenue shortfalls in coming years if many people continue to work from home and are taxed there.
About 30% to 40% of Dayton’s employment base is working from home, city officials say, and many people who are working remotely likely will continue to do so even after the pandemic is over.
This could lead to large revenue declines for Dayton if workers pay income taxes where they are working remotely and not where their employers are based.
“We actually anticipate, according to (the office of procurement, management and budget), that there could be as much as a $25 million gap in our budget because people aren’t going to come back to work in the same way, post COVID,” said Dayton Mayor Nan Whaley.
President Joe Biden last week signed a $1.9 trillion rescue bill that will provide about
$130.2 billion to local governments.
More than $45.5 billion of the funding will be reserved for metropolitan cities, and Dayton could get about $147.1 million, according to a report from the House Committee on Oversight and Reform.
Cities and counties are treated differently under the American Rescue Plan Act, the new relief bill, said Jared Walczak, vice president of state projects with the Tax Foundation.
Counties are funded according to population, while city funding is allocated based on a formula developed for federal housing assistance, he said.
The report says Kettering could receive nearly $14.2 million and Fairborn could receive nearly $6.9 million.
Montgomery County could receive an allocation of about $103.1 million; Butler County, $74.3 million; Warren County, $45.5 million; Greene County, $32.7 million; Miami County, $20.7 million; and Champaign County, $7.5 million.
The city of Dayton will figure out how to best use its federal aid when it confirms spending guidelines and has a c learer understanding of eligible and ineligible costs, the mayor said.
Whaley said she hopes some of the money can help fill budget holes caused by the coronavirus.
In 2020, the city received $17.4 million in local coronavirus relief funds, or CARES Act funds.
The passage of the American Rescue Plan means the city of Dayton will have police and fire recruit classes this year, Whaley said.
The city originally planned to push back the police class until next year to cut costs, and the fire class was only going to take place if the city obtained grant funding.
About three-fourths of the city’s general fund revenue comes from income taxes, and people’s earnings are taxed where they work, not where they live.
Ohio House B ill 197, approved last year, allows cities to collect “commuter” taxes from people who are working from home or other jurisdictions during the pandemic but whose employers are inside of municipal boundaries.
This was a temporary provision that is set to expire 30 days after the state emergency order ends, officials say.
Proposed legislation, House Bill 157, would repeal the commuter tax provision, meaning remote workers would be taxed where they physically work.
This could put “enormous” holes in Dayton’s budget because many people who used to work in the city but live elsewhere will not return to the office when the public health crisis is over, Whaley said.
An estimated 100,000 people or more work in Dayton, according to some older U.S. Census estimates.
Dayton City Manager Shelley Dickstein recently submitted testimony opposing H.B. 157 in which she said the commuter tax provision that it seeks to repeal prevented the city from losing as much as $45 million or more — nearly a quarter of its general fund budget.
If H.B. 157 becomes law, Dickstein said, the city could face a permanent revenue loss of $25 million or more each year, which would cripple the city’s ability to provide essential services.
“It is our request that the legislature not enact H.B. 157, and instead provide municipalities and businesses the necessary time to thoughtfully address changes and impacts of permanent work-from-home policies without creating cataclysmic consequences,” Dickstein said.
More than 3 million Ohioans say someone in their household is working remotely at least some of the time because of the pandemic, according to the U.S. Census’s experimental Household Pulse Survey.
The American Rescue Plan will help cities but these are one-time funds, said Keary McCarthy, executive director of the Ohio Municipal League.
“The shifts in where people work over the long term could result in long-term revenue shortfalls that these one-time funds would not be able to address over time,” he said.