INCOME TAX '03 increase praised and denounced

It has been a financial boon for Youngstown, but some businesses have left town.
By DAVID SKOLNICK
VINDICATOR STAFF WRITER
YOUNGSTOWN -- When a half-percent income tax increase took effect Jan. 1, 2003, there were those who said it would do more harm than good.
The income tax increase from 2.25 percent to 2.75 percent, approved by city voters in November 2002, gave Youngstown the dubious distinction of having the state's highest municipal income tax rate.
Those opposed to the tax said it would discourage businesses from expanding or locating to the city, and would encourage Youngstown companies to move to the income tax-free suburbs.
Based on the city's tax collection numbers, going from 2.25 percent to 2.75 percent -- a 22 percent increase -- has been a financial boon for Youngstown.
Figures provided by the city show that income tax collections in 2003 increased by 20.24 percent, about 2 percent less than the percentage increase, compared to 2002, the last year for the 2.25 percent income tax. But income tax collection increased by 25.19 percent in 2004 compared to 2002. The city is projecting a 27.38 percent increase for 2005 compared to 2002.
"We've done better than we thought," said Dan Brott, the city's income tax commissioner. "Without the increase, we'd be millions of dollars in the hole."
Reasons for increase
City officials say the income tax revenue is doing well because of expansion projects at businesses such as Exal Corp. and Brilex Industries, the opening of a InfoCision Management Corp. call center, several smaller companies opening up shop on Federal Street, and several major construction projects including the city's $41 million convocation center and $163 million invested in new and improved buildings for the Youngstown school district.
Other factors include better collections, being more aggressive with delinquencies and people making more money, Brott said. Even so, the city is considering hiring an agency to handle income tax collections. The agency could increase income tax collections by $300,000 in its first year, said David Bozanich, city finance director.
Mayor George M. McKelvey, who describes himself as "an anti-tax person," said he supported the income tax increase because without it, there would have been massive layoffs in the city's safety forces.
"Surely some people moved because of the tax, but we had a larger migration when the tax was 2.25 percent," he said. "When you weigh the pros and cons, you have to look at the net effect. We've seen a net growth in the tax. I can't see any other way to increase our tax base by $9 million in three years. If we can get to a point where we can cut a quarter percent, we'd do that, but we're a long way off from that."
Opposition moves
The income tax increase led some businesses to leave the city and is responsible for other companies relocating some of their operations to the suburbs.
David G. Lodge, president of Home Savings and Loan Co., a business founded in Youngstown in 1889, said the bank moved some of its back-office operations, including loan production offices, to Boardman instead of keeping them in the city. The reasons for the move were the cost of improving the space for those operations at the city's downtown office and the income tax.
The bank, which has 37 branches and 720 employees, is also finding it challenging to hire employees to work in Youngstown because of the high income tax, Lodge said.
"We'll hire people who aren't aware of the city income tax, and they'll see their first paycheck and put in for a transfer outside the city," he said. "If people are aware of the income tax, it's harder to get them to come to Youngstown."
Also, the tax was to fund safety forces, and Lodge said if anything, he's seen a decrease in safety in the city.
"It's dirty and it's not that safe," he said.
The law firm of Harshman and Bernard relocated its Youngstown staff to Canfield after a recent merger with the Betras, Maruca and Kopp firm. The new firm will maintain a satellite office in Youngstown, but it will not be staffed, David Betras said.
The income tax and parking concerns were the primary reasons for leaving Youngstown, he said. When asked about location, Betras said employees at the two firms were unanimous in selecting the Canfield office.
"It would be a pay cut for those in Canfield to move to Youngstown, and it's a pay increase for those who left the city," he said. "A number of lawyers are moving out of downtown because of the tax."
Betras moved his firm out of Youngstown in 2002, before the tax increase went into effect. The reasons were parking and his clients' perception that the city isn't safe.
"I need convenient parking in front of my office, and I have that in Canfield," he said. "As for my clients' perception, I don't agree with it. I always felt safe in Youngstown, but perception is reality. I do what best suits my clients' needs."
Neutral decision
St. Elizabeth Health Center, one of the city's largest employers with 2,620 workers, didn't consider Youngstown's income tax during strategic planning for its facility, said Paul Olivier, director of planning and public policy for Humility of Mary Health Partners, the hospital's parent company.
"All the plans [were] based on community needs and population path," Olivier said, explaining why HMHP has opened facilities in Boardman and Austintown.
But HMHP has also made infrastructure improvements at St. Elizabeth including adding operating rooms, he said.
Councilman Rufus Hudson, D-2nd, opposed increasing the income tax because he felt it would hurt business growth in the city.
While the income tax figures are increasing, Hudson said it is somewhat deceptive.
"Some of our larger businesses are moving operations to the suburbs," he said. "We have a lot of construction in the city, but that's for a short period of time. Construction is inflating the number. But you can see we've lost hospital, financial and legal services to the suburbs. Those income tax numbers will be significantly lower once construction drops off."
While Hudson opposed the tax increase, he sees no way to eliminate it now.
"You have choices, decisions and consequences, and no one looked long term at having the highest income tax in the state," he said. "I don't think it's been helpful to attracting business to the city, and it's certainly a factor" in some downsizing by companies in Youngstown.
Not positive factor
Reid Dulberger, executive vice president of the Regional Chamber, said his organization routinely hears complaints from business owners about the city's income tax rate.
"Anything that adds to the cost of doing business is not a good thing," he said. "Some companies have moved staff out of the city to mitigate the impact of the tax on its workers. We hear comments about it from people considering investing in the city and folks in business not expanding in Youngstown. Everyone comments about the tax. "
On the other hand, Jason Whitehead, executive director of the Youngstown Central Area Community Improvement Corp., said no one looking to locate to the city has expressed concern to him about the city's income tax.