How To Understand Cincinnati's $1.5 Billion 2022-23 Budget
Cincinnati City Council is expected to approve a final budget this week for the fiscal year starting July 1. The Budget and Finance Committee meets Monday afternoon to negotiate council members' desired changes to the budget plan proposed by the city manager. The full council will likely take a final vote at Wednesday's regular meeting.
Here are some common questions about the budget process to help you understand the discussions this week.
Where Can I See Budget Information Online?
Documents are published on the city website under the Finance & Budget page: Cincinnati-oh.gov/finance/budget
There are also links to prior years' recommended and approved budgets.
Why Does A New Budget Start In July Instead Of January?
The city budget is based on fiscal year rather than calendar year. Fiscal Year 2022 (often abbreviated as FY22) begins July 1, 2021 and ends on June 30, 2022.
Where Does City Income Come From?
The majority of revenue comes from income taxes, also called earnings taxes. Usually that makes up as much as 72% of overall revenue; this year is unique because of federal stimulus. Here's the breakdown of revenue for FY22:
- Earnings Taxes: 60.1%
- American Rescue Plan Act: 14.6%
- Property Taxes: 6.3%
- State Shared Revenue: 2.5%
- Casino Tax: 1.7%
- Investments: 0.9%
- Parking Meter: 0.3%
- Other Revenues: 13.6%*
* Includes: license and permit fees; admission taxes; short-term rental excise taxes; buildings and inspections fees and permits, etc.
Here's an example of a more normal budget year from 2017:
- Earnings Taxes: 71.2%
- Property Taxes: 7.4%
- State Shared Revenues: 3.3%
- Casino Tax: 2%
- Investments: 0.8%
- Parking Meter: 0.4%
- Other Revenue: 14.9%
Why Are Officials Worried About The Earnings Tax?
The current income tax is 1.8% of gross earnings, divided into three components:
- 1.55% for the general fund
- 0.15% for permanent improvements (capital)
- 0.1% for maintenance of city infrastructure
Because income tax accounts for so much of city revenue, losing any of that income would have a significant impact on the budget. The tax is pulled from people who work in the city, even if they live outside of Cincinnati; a bill at the Ohio legislature would give people in that category the right to request a refund of taxes if they worked at home during the pandemic, therefore working outside of the city.
Council passed a resolution urging state lawmakers to reject that bill. They've also set aside a significant portion of American Rescue Plan funds in case it will be needed for refunds.
Even if the measure fails, city officials are concerned about impact on future revenue if many Cincinnati-based companies allow employees to work from home and the city can no longer collect those income taxes.
Who Decides How To Spend Taxpayer Money?
The process begins with City Manager Paula Boggs Muething, who worked with her team to prepare the first draft of a budget. That draft is passed along to Mayor John Cranley, who has the option to make any changes before it goes to council.
This year, Mayor Cranley's only change to the budget proposal was a 5% merit raise for Boggs Muething.
The amended draft gets sent to City Council, which is where the public input part of the process takes place. The Budget and Finance Committee held three public hearings on this year's budget.
Council has ultimate authority over the budget and must reach a majority agreement (five of nine council members) to approve the spending plan.
How Does A Biennial Budget Work?
The city budget technically covers two years at a time, but council still votes to approve funds every year.
Next summer, as FY 2023 nears, council will vote on a "budget update" to account for differences in actual revenue compared to expected revenue.
What's The Difference Between Operating And Capital Budgets?
The operating budget includes the services provided by the city, like police officer patrols, filling potholes, trash collection and operating the water treatment system. It includes wages for city employees and the cost of supplies needed to deliver services. The operating budget includes the general fund, where City Council has the most flexibility in funding decisions.
General fund dollars can be used for capital projects, but capital dollars cannot be used for operating.
The capital budget covers purchasing or improving city assets like buildings and vehicles. It includes assets that cost at least $10,000 and last at least five years. The capital budget includes some cash and some borrowing.
Some restricted funds in the capital budget include MSD capital improvements, the convention center and stormwater management.
A portion of income tax revenue is set aside for the capital budget: 0.15%, which equals about $9 million each year for FY22 and FY23. This is cash-in-hand the city can use to pay for capital projects, which could include buildings not owned by the city (for example: the First Lutheran Church bell tower repair project).
The city can also take on debt for capital projects, but the amount of debt is limited by the amount of revenue expected from taxes — the city has to bring in enough money to make payments on the debt. If the city wanted to take on more debt for capital projects, council would have to approve an increase in taxes. Right now, the city issues bonds based on property taxes. The current property tax millage is 7.5 mills, or $7.50 per $1,000 of property value.
The city can't issue bonds on assets not owned by the city; that also applies to city-owned buildings with long-term leases, like Music Hall's 100-year lease. Playhouse in the Park is another example of a city-owned building that can't use bonded capital for improvements because of long-term use agreements.
Assistant City Manager Christopher Bigham explains: "Bond holders look at what we're pledging against it. If we don't own it, they can't go after it if we default."
What Is Leveraged Support Funding?
The city budget includes funding for third-party, non-government organizations and programs to "support neighborhood revitalization, economic development, human services and violence prevention."
Leveraged Support makes up about 2.7% of the FY22 recommended General Fund budget. The Human Services Fund, administered by the United Way, makes up about half of total leveraged support funding.
Will There Be Budget Cuts This Year?
Thanks to stimulus funds from the American Rescue Plan, no departments are expected to have budget cuts for FY22. The second part of the biennial budget, FY23, includes some cuts proposed by the city manager. But things could change significantly between now and when council appropriates those funds next summer.
What Cuts Are Expected For FY 2023?
Although the city plans to use $66 million from the American Rescue Plan to make up for lost revenue in FY23, expenditures are still expected to outpace revenue.
The City Manager's Office is recommending a 3.7% reduction across the board for a total savings of about $17.8 million.
The plan does not include city employee layoffs, but does eliminate about 25 full-time positions through the Early Retirement Incentive Program. Most of those positions will be eliminated in FY22.
How Do Officials "Find" Money In The Budget To Add Services?
City officials budget every dollar of expected income; sometimes there's leftover money when the city brings in more than projected, and often mid-year adjustments are needed to transfer money from a department with surplus to a department with a deficit.
When council members add programs or projects to the budget recommended by the city manager, they have to choose what to cut.
The first round of negotiations this year hasn't required such cuts because the administration "found" $1,295,000 in the operating budget that could be allocated after releasing their proposed plan.
Here's where that "found" money came from:
- $250,000 from position vacancy allowances in departments like HR, finance and parks. This is savings from not having to pay salary and benefits for a job opening that hasn't been filled yet
- $250,000 from position vacancies in the police department
- $700,000 in one-time savings from the contract for Office 365, because there will be no payment during FY22 for this service
- $20,000 from the vacancy of a department head in the Office of Performance Data and Analytics
- $75,000 because the cost of work for the Black Lives Matter mural on Plum St. will be less than expected (note: this is not referring to the money recently allocated to repair the mural)
Administration also identified $1 million in cash capital not allocated in the first draft of the budget. Council approved a plan for allocating these dollars last week.
From now on, adding to the budget will require making cuts, which council members will debate and vote on starting Monday.