Officials: Collections from wages fall behind

When hard times come, we'll be in trouble, the treasurer warns.
By PETER H. MILLIKEN
VINDICATOR TRUMBULL STAFF
WARREN -- Although this year's city income tax collections are running 8.77 percent ahead of last year, the city treasurer and tax administrator are concerned because the portion being paid by employees under payroll withholding has declined slightly.
"We should see an increase in a healthy economy," Tax Administrator Thomas J. Gaffney said of the revenue from tax withheld locally from employees. Last year, 81.5 percent of the city's $18,824,458 in income tax revenues came from money withheld from employees' paychecks, he noted.
"If jobs were paying more, if there were more employment, you'd see an increase," Gaffney said. "We're not seeing an increase whatsoever. That means people are not working. There are no wage increases."
"That is a troubling sign for the future because the national economy is growing in most areas pretty swiftly," said city Treasurer John B. Taylor. "That just tells you that when hard times come down the road, we're going to be in some serious trouble."
'Troubling trend'
When comparing the period from Jan. 1 to Sept. 15 of each year, the tax revenue derived from wage earners by withholding has declined 0.73 percent from last year's level and 3.59 percent from the 2003 level.
The city is losing about 1 percent of its population annually, and much of its remaining population consists of retirees, whose retirement benefits aren't subject to the city's 2 percent income tax, Taylor explained.
The city lacks high-paying jobs, he said. New businesses haven't come to Warren in sufficient numbers to replace those that have left or closed, Taylor said. "This is a troubling trend," he said.
Gaffney said city income tax revenues should get a boost from payments from construction workers on the $153 million new city schools construction project, in which a new Harding High School and four new kindergarten through eighth grade buildings will be built over the next several years, but he said their impact will be short-term.
Meanwhile, comparing the same period each year, revenue derived from self-employed people and others whose city income tax isn't withheld from their paychecks has risen 15.39 percent between 2004 and 2005 and 21.37 percent from 2003 to 2005.
This increase in what the city calls individual accounts is due to a variety of strategies the city tax offices uses, including research to identify those who owe and court action against tax deadbeats, Gaffney said.
Most of the tax department's effort is focused on pursuing these individual accounts, without which the city would suffer financially, Taylor said.
Corporate tax
The largest increase in income tax revenue has come from corporations that pay the city 2 percent of their net profits. Comparing the period of Jan. 1 to Sept. 15, corporate tax collections have risen 137.37 percent from last year and 48.53 percent since 2003.
But Taylor is quick to note that corporate tax collections are unpredictable and can fluctuate widely from year to year.
Revenues from the corporate tax are up substantially because locally based companies, including steel-related businesses, have customers elsewhere in the country, where the economy is doing well, Taylor explained. These companies "just happen to be housed in our community, and, therefore, we benefit from the tax revenue," he noted.
"The most unpredictable piece of this whole puzzle is up $1 million," from last year, Taylor said, referring to the portion of the city income tax paid by corporations.
Had this revenue from the corporate sector been down $1 million, the city would be in "huge trouble," Taylor observed.
Unpredictable figures
"The corporate tax has carried the mail," for the city this year, Taylor said. But there's no way city officials could have predicted that as they were compiling budgets a year or so ago, he said.
One factor in the increase in revenues from corporations has been a steady increase in tax collections from utility companies, to which city income tax was first applied in 2002, Gaffney said.
Of the $14,558,883 in city income tax collected this year from Jan. 1 to Sept. 15, $10,884,433 came from wage earners; $1,960,758 came from self-employed and other individuals whose city income tax isn't withheld from their paychecks, and $1,713,691 came from corporate net profits.
Warren levies a 2 percent tax on wages, salaries, commissions, fees, bonuses, tips, lottery winnings, net rental income and corporate net profits.
Social Security, welfare benefits, annuities, pensions, unemployment insurance, military pay, alimony, royalties, interest and dividend income, and capital gains aren't subject to the city income tax.
milliken@vindy.com