CHICAGO -- Ohio's controversial income-tax overhaul legislation, which critics have said could hurt local governments, is on hold until after November elections.
The House passed House Bill 5 late last year, but it has since stalled in the Senate Finance Committee. It's expected to sit there through the summer at least, according Kent Scarrett, communications director with the Ohio Municipal League, which opposes the bill.
Lawmakers, who are expected to leave for summer break after the first week of June, will likely pick it back up again during the lame-duck session after the November elections. That will be the first time they're back in full session after the summer break.
The measure proposes a major overhaul of the Buckeye State's notoriously complex income-tax system. The bill establishes a common tax base by defining what kinds of income local governments can tax and what kinds they can't. Some local governments could face significant hits to their bottom lines if the bill becomes law, municipal officials and economists say.
Income taxes are a key revenue source for most of Ohio's local governments, accounting for an average of 60% of total general fund revenue. With less revenue, municipalities will face new limits on their ability to borrow, and could see a drop in debt service coverage for existing debt, experts said.
Ohio is one of only 17 states that allows all its municipalities to impose income taxes. Without a uniform local income tax policy, the state has hundreds of different local income tax systems. Of the state's 943 local governments, 592 levy an income tax, with roughly 300 different structures.
HB 5 remains on hold for now, but lawmakers are eyeing another provision as part of a larger mid-biennium budget review bill that may foreshadow a fresh headache for local governments, Scarrett said.
The budget review bill, House Bill 483, would require each municipality that has an income tax to annually break down the revenue by resident and non-resident.
It means more work administratively because local governments don't currently capture that information, Scarrett said. But more importantly, it could be the first step toward legislation that bans municipalities from taxing non-residents. The proposal has sparked some interest among conservatives.
"It's a conversation that's been happening for years," Scarrett said. "The effects would be devastating to our cities and townships," he said, saying some cities get up to 80% of their income-tax revenue from non-residents who work in the city. "It would severely cripple them revenue-wise."
The Senate passed HB 483 May 22, and now it's heading back to the House, where the income-tax provision may hit some opposition, Scarrett said. A final bill will likely be hammered out in conference committee the week of May 26.
Separately, the House on May 21 passed House Bill 198, which could mean big changes to financing of infrastructure projects backed by tax increment financing districts.
The bill gives property owners the ability to opt out of a TIF district. That could lower the assessed value of a TIF district, and hurt the ability of local governments to issue TIF-backed bonds.
The measure applies largely to townships, which do most of the state's TIF-backed borrowing, and won't have much of an impact on larger local governments, Scarrett said.
