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How to Win an Income-Tax Hike

For Columbus' mayor, it was a last resort. Getting the voters on board took a lot of groundwork.


Name

Penelope Lemov

Penelope Lemov is a GOVERNING correspondent. She was GOVERNING's health columnist and was senior editor for several award-winning features.

It's one thing to ask voters to raise an excise tax or boost a hotel tax. Those taxes only hit "users" -- and in the case of a hotel or bed tax, out-of-town users. But it's quite another to go for an across-the-board income-tax increase at a time when people are losing their jobs and homes.

That is, however, exactly what Columbus, Ohio, Mayor Michael B. Coleman did this past August. He not only won voters' approval of a half-percentage-point hike in the city's 2 percent income tax by a 52-48 margin, but he won it three days after an anti-tax "Tea Party" had taken place in his city.

I talked to Mayor Coleman about how he did it. Here's an edited version of our conversation:

What sort of revenue situation were you facing?

We had gone through a couple years of major and dramatic cuts in our budget. For the fiscal-year 2009 budget, we had a $123 million hole out of a $698 million operating fund budget. We closed that mostly with budget cuts, but we were facing a $115 million budget hole for 2010. The cuts we made in '09 did not include any public safety officers. We closed 11 recreation centers and we cut all functions of city government by significant amounts. We depleted the rainy day fund. For 2010, if we didn't have tax increase, we would have to lay off hundreds of police and fire officers. We would have to go to every-other-week trash collection. We were facing a crisis at a level this city had never seen before. It was going to be a catastrophic change in our city if we could not get a tax increase.

Mayor Coleman

As a capital city, don't you have a cushion that other cities don't have?

I wouldn't call it a cushion. We are doing better than most, and that tells you how other cities are doing. But this recession didn't discriminate between capital cities or any other city. We happen to be a city with a diverse economy. Normally, in a national recession, the downturn will impact one or two industries, so the rest of the legs of our economic stool are held up. This recession has been so severe -- frankly, it might show as a depression -- that every single leg of our stool was cut out from under us. The financial industry, housing, insurance, technology -- every element of our economy was severely damaged from this national recession.

Why did you target an income-tax increase?

Two-thirds of the operating fund comes from the income tax. The state of Ohio limits what sources of revenue cities can use. We don't have a sales tax. There is some limited property tax, but most of it is for schools -- not municipal government. So our opportunities for large, mass infusions of revenue are limited. Another source that had some potential was garbage-collection fees. We chose not to seek an increase there. Those fees would not generate enough revenue -- only $30 million to $40 million. Also, an increase in the garbage-collection fee, in my view, would have a detrimental impact on a group of citizens we want to keep in their homes: senior citizens. Everybody would be charged the same fee, and fixed-income folks would be negatively impacted. In Ohio, retirement and pension payments from whatever source are exempt from city taxation -- that protects our senior citizens, who are very vulnerable right now.

What kind of groundwork did you lay to ask voters to increase their taxes?

A year and a half ago, we had organized an economic advisory council that was charged with critically examining the city's finances to ascertain areas where we could improve, areas where we could make some changes in terms of potential cost savings. The council did a very thorough examination of our costs, revenue, expenses and savings.

Was this in anticipation of the problems you would be facing today?

I knew something was coming. I didn't anticipate the national recession. No one did. But the truth is, at the local level, we've been in recession a long time. Recessions in cities in the Midwest began years ago. The rest of the country caught up when the bottom fell out.

Couldn't you have cut expenses to close your budget gap?

I was mayor through the post-9/11 recession in 2001. We made cuts, raised some user fees and survived. In the situation we're in today, there is no way we could raise anywhere near close to the revenue we needed through cuts. We would have ended up desolate and decayed. It would cost so much more to bring us back.

So you had to do something. What was the next step?

The income tax is the big enchilada. So we had to look at it. We debated how much we should try to raise it and decided on 0.5 percent. Early on, we had very little support for this. The economy is tough; there have been layoffs citywide. We reduced our civilian population of city employees by one-third -- not including police and fire -- over the past two or three years. Businesses were laying off people -- and continue to do so. Or companies were forcing employees to go part time. So we've got high unemployment and people are making less money because of furloughs. In addition, there's a strong anti-tax environment in Ohio.

How did you prevail?

We made a commitment to the public with a 10-year reform plan that identified areas over time where we will be held accountable and what things we can improve. A resolution by the city council memorialized our intention to save our citizens $150 million to $200 million over 10 years by addressing these specific items.

But we needed $115 million right now. We went out and did some partnership building and coalition building. I can tell you we had virtually no support going into this, but at the end of the day every civic organization, business community, religious community, neighborhood group and organized labor developed into coalitions of alliances. Labor and management within the public and private sectors came together. Republicans and Democrats. I then asked these folks to be ambassadors for the cause throughout the city. Police and fire unions put together a safety-focused campaign. I went out and met with neighborhood groups. The basic message was: We have a great city, but if we cannot maintain the level of services we have now, our quality of life is at risk.

What advice do you have for others who want to try something like this?

I learned six lessons from this:

First, You have to have total and complete transparency -- of your books, your finances. We went out in communities and talked about our strengths and weaknesses in an honest and open way.

Two: There must be a reform plan. You must be able to look in the mirror and determine what is it you can do better as a city, and then do it. And it's hard to admit that you're not doing everything perfectly.

Three: When you talk about the pain of the cuts in city government as they impact citizens, you have to take some cuts yourself. I cut my salary and the salary of everybody that I had control over. We had to show our citizens that this is the real deal.

Fourth: Building partnerships and coalitions was key.

Fifth: You have to have a strategy to communicate your ideas in a clear fashion to each stakeholder. You have to have a focused message.

Sixth: You have to educate the public about what the real deal is. Here's a prime example: We set aside 25 percent of every dollar we get in from the income tax into a special fund. The set-aside is used to retire bonds that are issued to build infrastructure. So some opponents of the tax said, "Take that set-aside and apply it toward the general fund." We had to educate the public and communicate with them in a transparent way that if we did that, we would default on bonds that had been issued, and that's a terrible financial practice. We're a triple-AAA credit-rated city, and we would be guaranteed to lose that if we eliminated that set-aside.

When I talk about this around the country -- how the public adopted a self-imposed 0.5 percent income-tax increase -- people are floored. They wonder how we did it at a time like this. I can tell you this. I don't want to do it again.


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