Defeat of income tax hike puts city of Niles in a bind

When the state commis- sion overseeing the financially challenged city of Niles meets later this month, the following question will undoubtedly be on the minds of the members: Is it possible to balance the 2016 general fund budget without laying off city employees?

The question takes on added importance in the wake of the inexplicable rejection by Niles voters of a 0.25 percent income tax increase in the Nov. 3 general election. We use the word inexplicable because it had been widely reported that the increase was the foundation of an economic recovery plan designed to pull the city of out state-mandated fiscal emergency.

Indeed, the defeat of Mayor Ralph Infante in the May primary at the hands of former council member Thomas Scarnecchia, who promised a top-to-bottom review of city government, led us to believe that residents were willing to give the new mayor the tools he needed to restore finaancial stability. We obviously misread the mood of the voters. The income tax increase was rejected by 691 votes (3,023 to 2,332).

Scarnecchia won the general election, but his victory could well turn out to be bittersweet. That’s because state auditors revealed in August city government expenditures were exceeding revenues by $1.6 million.

In other words, major cuts in spending are unavoidable.

“It would be very difficult to balance the budget without significant spending reductions,” Quentin Potter, chairman of the state deficit commission, told The Vindicator this week. “That may include some reduction in force.”

As for putting the tax increase issue back on the ballot, Potter had this to say: “I could see them wanting to go back and try again, but you’re still not getting the revenue in 2016. You can’t count revenue that you don’t have coming in.”

Therein lies the problem.

Without a major infusion of dollars into the general fund, the city of Niles will continue to skate on thin financial ice.

Red ink

Thus, Mayor Infante, Mayor-elect Scarnecchia and members of city council must return to the drawing board and figure out how to slash spending to eliminate the red ink in next year’s budget.

As deficit commission member Fremont Camerino, a former long-time city council president, so aptly put it: “The issue isn’t money – it’s spending. We do need to examine all city jobs.” Niles has been in fiscal emergency since October 2014.

The income tax increase would have generated $900,000 a year starting in 2017.

The elimination of the deficit is a key component of the five-year economic recovery plan that is required by the state in order for fiscal emergency to be lifted.

Rejection of the income tax increase is also surprising because in August, state auditors made it abundantly clear that the entire $900,000 generated annually from the 0.25 percent hike could be used to meet general-fund expenditures.

“The auditors told us that [they found] no specificity in the language, so all the money can go to the general fund,” council President Robert Marino said at the time. “We don’t need to change the five-year forecast.” At issue was the ballot language for the tax increase.

The clarification from the state was prompted by Mayor Infante’s contention that the money generated by the additional tax would be divided among the general fund, police and fire equipment and road resurfacing.

That allocation would have blown up the five-year budget forecast that is required by the state auditor before the emergency can be lifted.

City officials’ reluctance to mention the word “layoffs” when discussing their next moves is understandable.

But as we have noted on numerous occasions in this space, the public payroll must be one of the first places decision-makers look to find savings. That’s because more than 60 percent of government’s operating budget is eaten up by employee wages and benefits.

It isn’t known if the Nov. 3 “no” vote on the tax was the result of residents being uncertain about how the new money would be spent. But what is indisputable is that city officials are under the gun with the 2016 budget.