Friday, October 11, 2013




Earlier this week the State of Ohio Auditor (SOA) reported that Massillon's financial condition in terms of "cash flow" is in "fiscal emergency" which means that the state will be taking a very large role in guiding the city back into "cash flow" solvency.

How did Alliance get into its financial problem?

Largely because of state of Ohio funding cuts to local governments.

Since 2010 (and ending in city fiscal year 2013) except for the Estate Tax which is based on an eight year average, Alliance has had the following cuts:
  • Local Government Fund:  $428,359,
  • Personal Property & Utility taxes:  $110,810,
  • Ohio Estate tax (ended as of 01/01/2013): $387,589
Using the the eight year figure for the Estate Tax, Alliance has lost $926,758 in annual funding.

If one wants to included a nearly $3.5 million Estate Tax receipt in 2010 and average it out over the past five years, the state of Ohio funding losses annually mount up to nearly $1.5 million dollars.

I probed Mayor Andreani about his contact with, imput with, and response from 50th House District state Representative Christina Hagan (Republican - Marlboro), who represents Alliance in the Ohio General Assembly and who voted for the cuts (except the Personal Property tax phase-out which occurred prior to her time) and pretty much got "a shake of the shoulders."

The sum of the effect of the cuts is that if Alliance's voters do not see fit to pass a 0.5% increase in the city's income tax, Mayor Alan Andreani tells the SCPR that The Carnation City could be facing the same fate as Massillon's come 2014.

But there is a big, big difference between Massillon and Alliance.

In Massillon, in the context of ongoing political warfare between Mayor Kathy Catazaro-Perry and Massillon's city council, the mayor actually sought out the state auditor and seemingly was wishing for a "fiscal emergency" finding.

Such is not the case in Alliance.

In Alliance the mayor (like Catazaro-Perry, himself a former councilperson) has worked harmoniously with Alliance City Council and is fully on board with the effort to convince the voters of Alliance to approve the requested increase.

Such was not the case in Massillon.

Because of the CEO's and council's unity of purpose, Alliance actually has a chance not to replicate Massillon's fate.  And, in Alliance, you do not have a mayor who seems hellbent on trying to embarrass the city.

The SCPR reads Alliance as having about the same situation as Massillon:  a "cash flow" problem that can only be solved over the longer term by the infusion of additional revenues.

Now the city is in a "borrow from Peter to pay Paul" mode in the sense of doing what it should not be doing since as a matter of Ohio law neither the state itself nor its law political subdivisions (cities, villages, townships and school districts) are allowed to run deficits.

However, when finances get tight, the reality is that in addition to making expenditure cuts, political subdivisions shift monies from accounts not designed to pay current expenses to that very purpose.

Of course, doing that is "a dead-end street," because eventually the draw down will - over time - deplete those accounts of their monies.

Here is a look at Alliance's 2012 revenues less expenses.

This year, the SCPR is told by city officials, the shortfall could escalate to the $1 million mark.

Readers can see the descriptive material, charts and graphs for themselves by going to the city's website  and opening up the pdf file on Alliance's Comprehensive Annual Financial Report.

I spent about an hour and one-half yesterday talking with Alliance mayor Alan Andreani, City Auditor Kevin Knowles and Councilman-at-Large Larry Dordea.

Between Andreani, Knowles and Dordea, the SCPR learned that:
  • Of Alliance's current 2% city income tax, normally
    • 79% goes to the "general revenue fund,"
    • 10% goes to the "master capital fund,"
    • 7% goes to the "streets fund" and the remaining,
    • 4% goes to the "water fund."
      • However, in this un-normal times, the general fund portion has been bumped up to 86% at the expense of the normal allocation to the "master capital" and "streets" funds.
  • Alliance last passed an income tax increase in 2006 for a 0.25% (one fourth of one percent which raised about $1 million dollars annually),
  • Because Alliance received a $3.9 million Ohio Estate Tax payout from the state of Ohio in 2010, the city was able to couple that payout with the 2006 city income tax increase which brought the overall rate to 1.75% to survive to the present time,
    • Note:  In 2006, Alliance failed to pass a 2.75 mill parks and recreation levy,
  • Since 2010 the city has (see specific numbers above) lost about $1 million in state of Ohio revenues,
  • Alliance, through attrition (retirements, operational consolidations and the like) has reduced its payroll by about 40 employees,
  • Property tax collections (10 mills, inside millage) at one time produce about $1 million annually in revenues but is now down to about $750,000,
    • Note:  Alliance does receive some federal monies but they are not available for operational expenses,
  • Alliance council did consider putting on a 9 mill property tax but decided not to because of the thinking that it would be too burdensome on senior citizens and those similarly situated,
    • Note:  the state of Ohio has made it more difficult for local governments to get passage of "new" property tax issues because Ohio has taken away subsidizing local governments on the 10% (plus 2.5% for owner occupied properties) tax rollbacks
  • An Alliance city income taxpayer making $50,000 will pay about $365 annually ($1 per day) under the proposed .5% income tax increase,
  • Alliance city officials are worried about becoming the next Massillon (i.e. being designated by the state of Ohio Auditor as being in "fiscal emergency") and the attendant loss of control of the city's finances,
  • As noted in this blog above, over the past five years Alliance has taken money from the 7% normally allocated to street maintenance (i.e. "the streets fund") and put it into "the general fund" and consequently the city has had deteriorating streets in terms of increased potholes and the like and the inability to keep the streets clear of snow,
    • Note:  The "streets fund" has been reduced from the normal 7% to 4% of the 2% city income tax revenues and the normal 10% to the "master capital fund" (police cars, fire trucks, et cetera) has been reduced to 6%,
  • The proposed income tax increase is designed to last from three to five years,
  • If the tax does not pass, the city will:
    • Have to find alternatives to increase revenues, and
    • Look at additional ways to make cuts in city services
  • Alliance officials look at the tax increase proposal as being a message from the city's voters.  Either:
    • The issues gets passed and there is a restoration of diminishing services, or
    • It does not pass and they, of course, are to expect that there will be further cuts and there will be new proposals put to the voters for increased revenues
  • A .5% increase will raise about $2 million additional per year and will have the distinction of making Alliance the highest income tax rate (at 2.5% overall) in all of Stark County,
  • If the proposed tax passes, Alliance will not be bringing back employees to pre-financial crisis levels.
    • Note:  Mayor Andreani promises that the city will be very sparing in bringing on new workers to the city's payroll,
  • (Dordea)  Council and the Andreani administration (unlike Massillon) are united and on the same page in supporting the proposed increase,
  • Some citizens have objected to the increase,
  • Mayor Andreani explains what Alliance is doing in terms of economic development in order to increase the number of taxpayers paying the city's income tax; whether the tax rate increased or not,
  • The city has embarked on a series of taxpayer information meetings and attendance is light so far but only one such meeting has occurred,
  • There is no organized "opposition to the tax" effort,
  • Alliance is combing through records (IRS available information) to determine whether or not all liable Alliance taxpayers are paying their fair share,
November 5th is a critical day in the life of residents of The Carnation City.

To repeat the question posed in the header of this blog:

Is Alliance destined to follow Massillon's lead in to fiscal emergency?

The answer to that question will come from the voters of Alliance in a little over three weeks.

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