Politics

Cincinnati's budget is in trouble. A commission recommends income tax increase, trash fee and more

91.7 WVXU | By Becca Costello

Published April 11, 2024 at 7:30 AM EDT

Updated April 12, 2024 at 2:06 PM EDT

In brief

Cincinnati's budget is in trouble, with an estimated $487 million deficit by 2033.
The mayor established a Futures Commission of local business and labor leaders to do a comprehensive analysis of the city's financial position and recommend changes.
The commission is recommending two income tax increases: 0.1% for economic development and 0.05% for public safety. Both would be limited to 10 years, and both would require voter approval.
Other recommendations include establishing a waste collection fee (also requiring voter approval), major investment in the Affordable Housing Leverage Fund, and monetizing city assets.

This story will be updated.

Diving in

A commission made up of Cincinnati business, community, and labor leaders has recommended a pair of earnings tax increases, a trash fee, and several other initiatives to fix the city's projected budget deficits.

The Futures Commission, formed by Mayor Aftab Pureval in late 2022, is chaired by Procter & Gamble CEO Jon Moeller and includes 33 other members. The Cincinnati USA Regional Chamber managed the year-long process that included 30 meetings, plus community engagement through a resident survey and focus groups.

The report, released Thursday, estimates a $487 million deficit in the General Fund by fiscal year 2033.

"What we are presenting to you is a consensus report, not one where each Commissioner supports each and every recommendation," Moeller writes in the report. "The work ahead will be complex and difficult, and while the Cincinnati Futures Commission’s work is complete with the delivery of this report, I believe the business and civic community that has been engaged throughout this process is committed not only to support these recommendations but to see them through to completion."

You can see the full report below (story continues after):

Cincinnati City Council approved a total $1 million for the Cincinnati USA Regional Chamber to support the work of the Futures Commission. Other than providing the commission with city data as requested, the city has not been involved in the commission's work.

A package of 36 recommendations to address that deficit covers a broad range of topics, and are intended to be adopted as a whole package, not piecemeal.

"The commission has recommended action on the following strategic priorities for the city intentionally invest in growth: align the budget around strategic priorities; double down on public safety and other core services; responsibly resolve long term financial risks," Moeller said on a press call. "The recommendations developed to support these strategic priorities work in concert with each other as a holistic plan — they're not a menu of options for the city to pick and choose from. All pieces are necessary to achieve financial sustainability and growth, and we believe the city must do all of them, including the more difficult ones."

The report says the city can't tax or cut its way to sustainability without also investing for growth.

The recommendations center around three key goals: increasing city population, adding jobs, and increasing wages to shrink wage disparities.

Economic growth via earnings tax, asset monetization

The report recommends several economic development initiatives aimed at increasing city revenue, estimated to cost a total $275 million over 10 years.

That money would come from monetizing existing city assets (see more below), generating at least $35 million; and a new 0.1% income tax generating $240 million (see more below).

Recommendation: Create an Office of Strategic Growth in the City Manager's Office (estimated $10 million investment)

The office would combine all aspects of city response to residential and commercial development
The office could complete the next two recommendations: complete a development policy review to streamline a process the report says is long, convoluted, and discourages development (estimated $1 million cost); and, complete an updated Land Use Plan by mid-2025 (estimated $1.5 million cost)

Recommendation: Create a $100 million Sites for Good Jobs Fund

The Sites for Good Jobs Fund would be a partnership with The Port to identify, acquire and improve sites within the city where companies could locate and bring new jobs.
The focus would be on industries with high-wage jobs that don't require a four-year degree.

Recommendation: Invest $80 million in the existing Affordable Housing Leverage Fund

$8 million a year would be added to what the city currently puts in the Affordable Housing Leverage Fund (up to $5 million a year through the annual carryover budget) for total investment of up to $100 million over 10 years.

Recommendation: Create a $50 million Neighborhood Growth Fund

The Neighborhood Growth Fund would partner with the Cincinnati Development Fund (which currently manages the Affordable Housing Leverage Fund) to support projects developed by Community Development Corporations, The Port and others.
It would target funding for market rate housing, mixed use development and site acquisition.

Recommendation: Support community development corporations

$5 million over 10 years for capacity building at CDCs (Community Development Corporations) via Homebase, an organization that supports CDCs.

Recommendation: Increase support for minority businesses

$25 million over 10 years through the collaborative Lincoln & Gilbert Initiative.

Other recommendations include supporting large-scale commercial and housing development, aggressively using job creation tax credits, and support land-use initiatives that increase density and mixed-use development (an endorsement of the Connected Communities plan currently under consideration).

The report also recommends restoring previous economic development incentives that council scaled back last year(more on pages 26-27 of the report).

Paying for the Economic Growth agenda

The commission recommends asking voters for a 0.1% earnings tax increase, limited to the specific economic development purposes outlined above and expiring after 10 years.

The current earnings tax in Cincinnati is 1.8% of gross earnings and the revenue is divided into three categories:

1.55% for the General Fund
0.15% for permanent improvements (the capital budget)
0.1% for maintenance of city infrastructure (the capital budget)

An earnings tax of 0.1% is estimated to bring in $240 million over 10 years, split among the following:

$100 million for a Sites for Good Jobs Fund
$80 million for the Affordable Housing Leverage Fund
$40 million for a Neighborhood Growth Fund
$20 million for the Lincoln & Gilbert partnership

The remaining funds needed for these initiatives could come from the recommendation to monetize city assets. The Futures Commission recommends a business-led task force to identify city-owned assets that could be sold or leased for better use and new city revenue. Examples include: golf courses, Lunken Airport, parking facilities, and various parcels that could be used for development.

Funding public safety

Public safety makes up about 66% of the General Fund: roughly 34% for the Cincinnati Police Department, and roughly 28% for the Cincinnati Fire Department. Those expenses are conservatively estimated to increase 2.7% each year.

The commission recommends establishing a 0.05% income tax limited to police and fire service, expiring after 10 years. This would require voter approval via a charter amendment on a future Cincinnati ballot.

The earnings tax increase would generate an estimated $119 million in revenue over 10 years.

They also recommend reforming EMS billing to take greater advantage of reimbursement through Medicare and Medicaid, generating an estimated $18 million in revenue over 10 years.

Finally, the report recommends evaluating police and fire operations to identify efficiencies, creating an estimated $17.6 million in savings.

Parks and recreation

The commission recommends the city partners with Great Parks of Hamilton County to share management of Mt. Airy Forest and French Park, perhaps having Great Parks eventually take over control. This would save the city an estimated $9.5 million over 10 years.

The commission recommends greater collaboration between the Parks Department and Recreation Commission to eliminate duplicative services and functions; notably, the report does not recommend combining the two departments as they are in many other cities. This effort is estimated to save the city $25 million over 10 years.

Waste collection fee for public services

The report says Cincinnati is the only major city in Ohio, and one of a few large peer-cities in the U.S., that does not levy a waste collection fee.

The commission recommends creating a fixed monthly fee (about $15.30 per household, with a reduced amount for low-income households).

This would require voter approval via a charter amendment. It is estimated to generate $164 million in new revenue over 10 years.

Apartment complexes already are responsible for hiring private waste collection, so the change would apply almost exclusively to homeowners.

Fixing the pension fund by regionalizing water works

(more on pages 56-64 of the report)

Cincinnati is the only jurisdiction in Ohio that has its own public employee retirement system. The city's pension fund has been in trouble for several years; the unfunded liability reached $803 million last year (as of the most recent report to City Council). The fund is about 69% funded, down from 77% in 2015.

A federally mandated settlement agreement requires the city to put no less than 16.25% of active salaries into the fund each year; council increased that to 17% for fiscal year 2024, the first increase to the minimum contribution since 2016. The Commission says remaining at 17% is not enough to eliminate the unfunded liability.

The city has previously tried to transfer city workers to the Ohio Public Employees Retirement System (OPERS), but the state isn't interested in taking on a fund with such a large unfunded liability. The Futures Commission recommends bringing the Cincinnati Retirement System up to 80-85% funding, enough for OPERS to absorb the system without as much risk.

Reaching that funding level would require about $500 million; the commission recommends getting that amount by regionalizing Greater Cincinnati Water Works.

The recommendation is that the city create a task force to consider regionalizing GCWW; the actual change would require voter approval via a charter amendment. A regional system would not be private, but would be a new public entity as allowed in Ohio law. A regional entity would be able to offer drinking water service to additional surrounding communities, something GCWW currently cannot do.

The report says GCWW is facing problems as well; its primary revenue stream is selling water, so when water usage goes down the revenue goes down with it. The utility has expanded outside the city as much as possible, and the report says the only other option for maintaining revenue is to raise rates.

"While demand has dropped, much of GCWW's costs are fixed in water treatment plants, water mains, water towers, pumps, valves, and fire hydrants among many other items that all come with capital intensive replacement and maintenance costs," the report says. "[W]ith limited exception, GCWW's service territory has largely reached its geographic limits under current constraints of law, engineering, and economics."

The report recommends the formation of a task force to conduct a feasibility study on regionalizing the system under current Ohio law. It would likely be several years before city residents could vote to approve or denounce the plan.

"The city's choice is either to maintain the status quo at GCWW with ever-increasing rates against flat or declining demand, or convert to a regional district, expand territory to increase demand to better keep rates in check with the added benefit of asset monetization to help solve the pension liability," the report says.

Deferred maintenance and the railroad sale

(more on pages 64-67 of the report)

Last month the voter-approved sale of the Cincinnati Southern Railway to Norfolk Southern officially closed; the $1.6 billion sale revenue has been invested, with eventual returns limited to supporting the city's large backlog of maintenance of city assets like streets, parks, health centers and recreation centers.

The commission is recommending the city repurpose other city revenue sources currently committed to the capital budget, repurposing those to the operating budget's General Fund. This is contingent on the Cincinnati Southern Railway investment returns being as high as predicted.

Other recommendations

Increase parking enforcement, expand the parking meter footprint, and eliminate peak hour parking restrictions across the city.

City response

Mayor Aftab Pureval said in a statement he's grateful the Futures Commission approached the task with an open mind and deep understanding of the city's challenges and opportunities.

"While the report makes clear that this is a holistic set of recommendations, many of the individual items will require vetting, public engagement, and an eye toward our vision of equitable growth," Pureval said in a statement. "This is going to take time, but I am confident that in coordination with City Manager Long and the incredibly talented folks in our Administration, we will lead an intentional process that keeps City employees, and residents throughout our communities, in the conversation."

When Pureval first formed the Futures Commission in 2022, he told WVXU an earnings tax increase was one possible solution.

"When I say everything's on the table, I mean it," Pureval said.

City Manager Sheryl Long was not available for an interview Thursday. A city spokesperson said in a statement: "The City has just received the report from the Futures Commission. The City Manager will look to the Mayor and City Council to provide guidance on how they would like the Administration to proceed."

Councilmembers Reggie Harris (chair of the Budget and Finance Committee) and Jeff Cramerding were also briefed ahead of the announcement, but did not see an advanced copy of the full report.

Harris told WVXU he appreciates the roadmap for fiscal stability.

"What I think has to be present moving forward is a clear articulation of how this roadmap will have an impact all Cincinnatians," Harris said. "If we were to implement all of these changes, what does it mean to the fixed income resident in East Price Hill? What does it mean to the young family in Northside? We would have be very clear about the value and the impact that it would deliver."

Harris says he has a lot of questions about the legality and practicality of some of the recommendations, which city administration will need to answer.

"I think it's highly unlikely we will see some of these priorities in this upcoming budget cycle given the timeframe," he said. "But I'm eager to sit down with the mayor and understand his perspective and where he wants to go with this."

WVXU has requested comment from all nine council members. Responses will be added as they become available.

Councilmember Anna Albi provided a statement: "We know the importance of our City continuing to grow and thrive. What the Futures Commission report makes clear is that we have some challenges and tough decisions ahead of us. I look forward to digging into the report's findings and working with my colleagues and the Administration to identify policy solutions that will support long-term financial stability for Cincinnati. I'm grateful to all the members of the Futures Commission who invested their time and energy into researching and preparing this report."

Councilmember Mark Jeffreys provided a statement: "I want to thank the members of the commission for devoting considerable time and effort to addressing our fiscal and growth challenges as a city. These recommendations are highly detailed and nuanced. They will require considerable engagement from our elected leaders as well as the community. Our objectives are clear: ensure that we have a balanced, structurally sound budget going forward while at the same time providing services that fuel our city’s vibrancy and growth. How we accomplish those objectives is now where we need to focus. I look forward to further vetting these ideas and others in the months ahead."

Councilmember Seth Walsh provided a statement: "I greatly value the recommendations of the region’s most influential business and civic leaders on how we move forward as a City as we face looming budget deficits. I believe growth is the most important topic our City faces and I’m glad to see the Futures Commission make recommendations on how to make this a reality for all of our neighborhoods. I am excited to explore the feasibility of these creative ideas in the coming weeks, along with engaging other Cincinnatians, before moving forward with the City’s comprehensive policy solutions."

Councilmember Jeff Cramerding provided a statement: "I appreciate the Futures Commission’s work and the overdue focus on the city’s $25 million operating budget deficit. The road forward will be complex. There will be detours and perhaps some dead ends, but I am confident that we as a city will find a path forward that includes growth, efficiencies, and additional revenue."

Updated: April 12, 2024 at 2:06 PM EDT

This article has been updated to provide statements from additional councilmembers.

Updated: April 11, 2024 at 12:01 PM EDT

This article has been updated to include statements from the mayor, city manager, and several councilmembers.