City’s finances on tight budget

UT professors predict growth, tax collections will slip in 2014

Oleg Smirnov, left, and David Black, professors in the University of Toledo’s economics department, predict the city’s economy and income tax collections could slip back after three years of growth.

THE BLADE/AMY E. VOIGT
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Oleg Smirnov, left, and David Black, professors in the University of Toledo’s economics department, predict the city’s economy and income tax collections could slip back after three years of growth.

Two University of Toledo professors hired to independently forecast the city’s financial health predicted Toledo’s economy and income tax collections this year could slip backward after three years of growth.

Additionally, the Collins administration Thursday warned that the city’s 2014 budget — which is being revised from the proposal submitted in November by former Mayor Mike Bell — would be extremely austere and require some modest adjustments.

“I can assure this committee that this will be an extremely tight budget,” City Finance Director George Sarantou said to council’s finance committee. “Every dollar will count. ... We do not have a lot of good news here.”

David Black and Oleg Smirnov, professors of economics at UT, said their forecast is based in part on unemployment data.

“Toledo’s employment levels appear to be stabilizing at levels well below their levels prior to 2008,” their report to council said. “Nationally, unemployment is expected to be around 6.5 percent through 2014. The unemployment level in Ohio is expected to be stable at 7.9 percent through 2014. These factors imply that there is no upward pressure on wages.”

Sarantou

Mr. Black and Mr. Smirnov told council’s finance panel that two forecasting models both showed decreases for income taxes over their previous estimates for 2013.

They previously predicted $160.5 million under one model or $160.9 million under a second model to be generated by the payroll tax in 2013. They now think the 2013 collection will top out at $158.6 million — under both forecast models.

The actual amount of money collected last year from the city’s 2.25 percent payroll tax is not yet known.

The Bell administration budgeted to collect nearly $163.88 million from the payroll tax in 2013. Mr. Sarantou said he expects the city to actually get about $160 million once fourth quarter payments are made.

“That means we will be $3.8 million short,” he said.

Higher-than-expected revenues from other sources and spending cuts last year could still keep the 2013 budget in the positive, said Clarence Coleman, the city’s commissioner of taxation and treasury.

“2013 would have been really tough had we not gotten as much as we did from the estate tax and casino revenue,” Mr. Coleman said.

The Bell administration expected the estate tax would generate $650,000 in 2013, but it produced more than $3.47 million. That won’t happen again because the estate tax has been eliminated. Toledo’s casino revenue in 2013 was expected to be $4.95 million but topped out at nearly $5.7 million.

Mr. Sarantou said the city spent between $500,000 and $1 million less than was authorized under the original 2013 budget.

“The Bell administration to their credit sent out a memo to directors in August and said cut spending, and we are seeing the effect of that,” Mr. Sarantou said. “The other side of that equation is income.”

One of the forecast models used by Mr. Black and Mr. Smirnov predicted $156.08 million will be collected in 2014 from the 2.25 percent payroll tax — a 1.62 percent decrease compared to the $158.6 million they predicted for 2013 under the same forecast model.

Their second forecast model predicts 2014 income tax collections will total $159.5 million.

The city collected $158.52 million in 2012.

“If your predictions prove valid and true we have a tough job ahead of us,” Council President Paula Hicks-Hudson said to the two professors.

Regarding the 2014 general fund budget, former Mayor Bell proposed cuts to most departments, such as reducing youth commission funding from $159,132 to $113,545.

Mr. Sarantou said the Bell administration proposed slashing funding for other departments — including the Toledo Municipal Court and municipal court clerk’s office. The Collins administration must find a way to fund those departments, Mr. Sarantou said.

“The courts were reduced by about $700,000 and we have had discussions with the courts and they have come back with a modified budget so it’s not going to be a $700,000 cut, it could be a $400,000 cut,” he said. “Our mission is to find the money to operate the courts efficiently and there are additional communications officers that are needed in the police and fire departments for 911.”

The cost to reopen the Northwest District police station in West Toledo — a promise Mayor Collins made during his campaign — is also escalating, Mr. Sarantou said. Earlier this month, the cost was estimated to be $120,000 but it could reach $225,000, Mr. Sarantou said.

Contact Ignazio Messina at: imessina@theblade.com or 419-724-6171 or on Twitter @IgnazioMessina.