YOUNGSTOWN Tax chiefs defend collection efficiency

Job losses and falling revenues are causing the city's budget shortfall, say finance officials.
By ROGER G. SMITH
CITY HALL REPORTER
YOUNGSTOWN -- A question arises when a government seeks a new tax:
Is enough being done to collect what's already owed?
City officials say they have taken several steps to maximize income tax collections since the 2000 state audit of city operations.
Those steps haven't yielded enough, though, to come close to avoiding the need for the half-percent income tax increase on the Nov. 5 ballot, said Finance Director David Bozanich.
Job losses plus income tax revenues that have fallen steadily since late 2000 -- not lack of collection -- leave the city with 60 layoffs and a projected $2.2 million year-end deficit, he said.
More layoffs are certain without the tax, he said.
The tax would generate $7.2 million to pay new and recalled police officers and firefighters and cover spending on capital items such as roads and equipment.
Collections
Bozanich, Dan Brott, income tax commissioner, and Mike Kraynanski, city management information systems director, give this account of collections since the performance audit:
* Tax filings: State auditors pointed out that just 19 percent of city residents were filing income tax forms. Comparable cities had rates of 40 percent to 50 percent. Auditors suggested about $5 million could be going uncollected because many residents weren't filing.
City officials disputed the description. They said tens of millions of dollars in income must be going unreported to add up to that much revenue.
The percentage of residents filing was low for two reasons, city officials said. One, most employers withhold the tax for the city. Two, the city didn't waste time and money sending forms to people without taxable incomes, such as retirees, despite the mandatory filing.
Nonetheless, the city took the state's suggestion.
The city compared residents filing state income tax forms to its own accounts. The city sent out about 35,000 tax forms in 2001, double the usual number.
About 15,000 of those tax forms became new accounts. That brought the city's filing percentage in line with comparable cities at about 40 percent.
Only about 1,000 of those accounts, however, owed the city money.
Brott guessed beforehand that the effort would yield about $100,000 in new revenue. That compares with more than $30 million a year the city collects in income tax.
The yield turned out to be about $50,000 -- half of what the city guessed. Plus, the city spent about $25,000 to collect the $50,000.
"It's not an area we looked at and said, 'Wow, that's a new income source,'" Bozanich said.
* Tax amnesty: A year ago, the city offered tax scofflaws a chance to pay what they owed by the end of 2001 without any penalties or interest. The city extended the deadline to April 30.
The city received $109,000 from the amnesty program.
The total does comparatively little to help the city's financial problems, Bozanich said.
* Staffing and technology: The state audit suggested either expanding the income tax department to maximize collections or contract with an outside company.
Twenty years ago, the city had nearly 30 income tax workers; today it has about four.
The city decided a larger in-house staff was more cost-effective and came up with a plan to make that happen.
The city got new computer hardware, searched for a new accounting system and planned to add up to 15 people. A deputy tax commissioner was hired and a temporary worker added. By mid-2001, the income tax office was ready to move to the city-owned Wick building to accommodate the new workers.
About that time, however, the budget deficit surfaced. The city couldn't implement the plans, Kraynanski said. There was no acceptable, affordable accounting system and no funds to hire workers.
"We just ran out of money," he said.
Today, there's not even a deputy tax commissioner. She joined 63 others in city hall and took the city's $10,000 incentive to leave the payroll.
Nonetheless, the city would increase income tax staff today if such an investment would at least break even, Bozanich said. But he says that's not the case.
Lagging economy
Instead, a lagging economy is causing the income tax shortfall, not lack of collection, he said.
Investing in economic development to raise income tax revenues is a better idea then spending money to collect what little goes uncollected, Bozanich said.
"We know the importance of that," he said.
New jobs that the city brings in, such as those through industrial parks, add about $6 million a year in new income taxes, he said.
Regularly adding those jobs is how the city has been able to maintain services until recently, Bozanich said. The problem now is that those gains have been offset by the recent job losses and the resulting tax revenue decreases, he said.
rgsmith@vindy.com