In the years since Ohio Gov. John Kasich and lawmakers began cutting millions in taxpayer funding for local governments, there has been an ongoing debate about whether to restore the money.

It’s been an issue in the race for governor this year: Democrat Richard Cordray has proposed restoring the funding — nearly $450 million. Republican Mike DeWine has not, but he has proposed making specific grants to help cities with issues such as opioid addiction.

Local leaders are particularly interested in local-government money because, unlike other state funding, that money is unrestricted: Cities and counties can use it for infrastructure or hiring police officers or any other need that crops up.

The first, smaller drop in local-government funds came in 2009 as state revenue tanked during the recession and there was less money to share. Bigger reductions arrived in 2012 when lawmakers cut the slice of revenue the state shared by more than half.

As money from the state dried up, some local officials warned that they would be forced to raise local income and sales taxes to maintain revenue and provide services.

Local taxes rise

Many local officials across Ohio did as promised: 163 cities and villages raised their income taxes — or instituted new ones — between 2008 and 2016, according to a Dispatch analysis of Ohio Department of Taxation data. Among Ohio’s 88 counties, 17 of them had higher sales taxes by 2016.

Records show that another 46 municipalities raised their income taxes in 2017 and early 2018, and that four more counties raised sales taxes in 2017, but The Dispatch was unable to analyze the effects of those taxes because the last full set of revenue data was from 2016. Cleveland and Dayton raised income taxes as of Jan. 1, 2017, and Akron raised its tax at the start of this year.

Compared with the 209 municipalities that have raised income taxes since 2008, there were 139 that raised taxes during the previous 10 years, about two-thirds as many.

There is a direct correlation between the recent tax increases and dwindling local-government funds, said Kent Scarrett, executive director of the Ohio Municipal League, which is lobbying for the return of the local-government funding.

It’s among several strains on municipal revenue that have come down from the state, he said, including the loss of estate taxes and changes to the types of income cities are allowed to tax.

Meanwhile, Scarrett said, an increase in local taxes shifts rather than reduces the tax burden in a state where leaders have professed they want to keep taxation to a minimum.

“The connection between local-government funds and rising local tax rates should be of concern to the legislature and statewide officials,” Scarrett said.

He and many local officials point to the $2.7 billion in reserve funds the state has built up since the local-government fund was cut and state income taxes were lowered as proof that the state has the wherewithal to restore the fund.

But Tim Keen, budget director for Gov. John Kasich's administration, said that fiscal cushion against a future downturn represents about 8.3 percent of state funding. Many cities are holding reserves at higher rates, he said.

Most municipalities are in a good position to rein in their budgets or raise their taxes as they deem necessary without taking more revenue from the state, Keen said. “Local people should make their decisions about the level of services they want and the method of payment they want,” he said.

Instead, Keen said, “the cut in the local-government fund is a get-out-of-jail-free card for local officials.” Even though the cut represented 1.5 to 2.5 percent of most cities’ budgets, he added, when local leaders raise taxes or face a budget problem, “They can point at the cuts to the LGF and say ‘This is why this is happening.’”

Through 2016, tax increases and a growing economy meant that, overall, local income and sales taxes more than made up for the local-government-fund cuts. Adjusted for inflation, Ohio’s cities, villages and counties saw a total of just over $1 billion more in revenue in 2016 from local income and sales taxes compared with 2008. Meanwhile, the cut to local-government funding totaled $446 million.

Revenue losers

But closer analysis shows there were individual winners and losers.

The revenue losers were mostly among the municipalities that did not raise taxes. There were 459 cities and villages that held income-tax rates level between 2008 and 2016. After adjusting for inflation, nearly half of them — 226 — had lower combined income-tax and local-government-fund revenue by 2016 than they had in 2008.

No tax increases

Among 459 cities and villages that did not increase taxes between 2008 and 2016, nearly half of them — 226 (in red on the map) — did not have enough income-tax revenue to make up for state cuts to the Local Government Fund. But 233 (in blue) did.

Source: Dispatch analysis of Ohio Department of Taxation data

The biggest loser was Cleveland, with an inflation-adjusted net loss of $47 million in annual income-tax and local-government-fund revenue, comparing 2008 with 2016. The city did increase its tax in 2017.

With the exception of Columbus, Ohio’s largest cities all were in similar straits: Dayton, down $26.5 million; Akron, down $18.2 million; Toledo, down $16.6 million; Youngstown, down $11.7 million; Canton, down $9 million; Cincinnati, down $7.1 million.

Taken together, gainers and losers, the 459 municipalities that did not raise taxes saw combined income-tax and local-government-fund revenue decrease by $66.1 million.

In central Ohio, tax revenue in Newark, where voters rejected an income-tax increase in 2014,did not keep up with inflation between 2008 and 2016. Combined with a cut of $1.6 million in local-government funding, the city's revenue was down an inflation-adjusted $2.6 million in 2016 from both sources combined.

Mayor Jeff Hall said tight budgets have spurred more efficiency, though he'd like to put more money into the city's safety forces and aging roads. "Communities have wasted money," he said. "It’s real easy to get a handle on it when money is tight."

Hall points to a skate park the city is building with money a foundation donated and a partnership with private developers who are paying 65 percent of the cost to revitalize the city's downtown. "I'm not going to sit here and say 'I can't do anything for my parks because I don't have any local-government money,'" he said.

If local government funds are restored, Hall said, they shouldn't come back in their original form: Once the state's reserves are replenished to a certain point, excess money should flow back to communities that need it for roads and bridges, safety or other specific needs.

Revenue winners

The revenue winners — by far — are the municipalities that raised taxes. Of the 163 that had raised taxes as of 2016, nearly all — 146 of them — had more combined revenue from income taxes and local-government funds in 2016 than they did in 2008, despite inflation and the cuts to the state funding.

Raised taxes

Of the 163 municipalities that raised taxes between 2008 and 2016, nearly all of them — 146 (in blue on the map) — had income tax revenue in 2016 that made up for Local Government Fund cuts.

Source: Dispatch analysis of Ohio Department of Taxation data

As a group, they saw an increase in combined income-tax and local-government revenue totaling $438.8 million, comparing 2008 with 2016.

More than half of that increase was in Columbus.

In 2009, as the first cuts to state funding were taking hold, and with city savings depleted from the recession, Columbus leaders asked voters to raise the municipal income-tax rate to 2.5 percent from 2 percent. Voters in a special election agreed.

By 2016, Columbus was receiving $32.6 million less in local-government funds from the state than it had received in 2008, adjusted for inflation. But it was bringing in $271 million more in income-tax revenue, a net revenue gain of $238.4 million.

The 2009 tax increase and steady economic growth helped Columbus weather not only the local-government cuts but also cuts to estate taxes, personal property taxes and other reductions, said Columbus Auditor Megan Kilgore. Today, she said, Columbus relies more on local income taxes: They're 78 percent of the city's general fund revenue now compared with about 60 percent a decade ago. That means a local downturn could hurt more than if revenue sources were more spread out.

"When we do experience those cycles, there are more ups and downs," she said.

Westerville voters also approved an income-tax increase in 2009, to 2 percent from 1.25 percent. With continued economic growth and the increase, the Columbus suburb kept up with cuts to the local-government fund and estate taxes, said City Manager David Collinsworth.

But others aren't so fortunate, he said.

"There are some communities that are more reliant on these dollars than others. Some raised tax rates, but there’s a lot of communities that have not been able to do that and are therefore worse off today," he said.

Keen has unsuccessfully promoted the idea that if local-government funding survives, the amount should be tied to communities’ capacities to raise more money themselves. Most communities simply aren’t very reliant on the state funding, he said.

“They have ample capacity to raise their own revenues locally,” he said.

It shouldn’t matter whether some communities are weathering the loss of local-government funds better than others, said the Municipal League’s Scarrett. People living in all cities generate revenue for the state, he said, and all should get a share.

“That revenue should be shared with all the communities that are creating jobs and are the engines of economic development in Ohio,” he said.

Most counties doing OK

Among the state’s 88 counties, 22 had lower revenue from sales taxes — counties’ primary source of revenue — and local-government funds in 2016 compared with 2008, after adjusting for inflation.

Among them was Summit County, home to Akron, where rising sales-tax collections did not fully cover a $7.6 million cut in local-government funding. In 2016, Summit County brought in a total of $1.7 million less in revenue from the two sources than it did in 2008.

But again, the 17 counties that raised sales taxes generally were doing better than those that did not: For counties that did not increase sales taxes, the median county had total revenue from sales taxes and local-government funding that was 4.7 percent higher in 2016 than in 2008. For counties that raised taxes, the median increase was 18.2 percent.

And some did a lot better. Franklin County, home to Columbus, increased its portion of the sales-tax rate from 0.75 percent to 1.25 percent. It brought in $64.8 million more in 2016 than in 2008 from sales taxes and local-government funds, despite a drop of about $14.8 million in local-government funds.

dcaruso@dispatch.com

@DougCaruso