01/26/2005
Mayor says tax hike imperative despite uncollected income tax issues
MIKE SAKAL , Morning Journal Writer
LORAIN -- A major issue in the last mayor's race was uncollected income taxes. Incumbent Craig Foltin put the figure between $1.7 million to $6 million. Challenger Joe Koziura scoffed at that amount.
Foltin emerged victorious in 2003, but nagging questions persist over whether there's a huge windfall of revenue just waiting to be collected. Those questions are complicating the mayor's campaign to pass a quarter percent income tax increase in the Feb. 8 special election.
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Foltin says he believes there are still uncollected taxes out there, but isn't sure of an amount, and quickly adds that it is ''imperative'' that voters pass the income tax hike less than two weeks from now.
''We don't want to do anything to jeopardize the tax,'' Foltin said. ''We desperately need this tax.''
Faced with a $2.9 million deficit, a stack of unpaid bills and IOUs, and the annual loss of $2.2 million in taxes when Fold Motor Co. shuts down its Lorain Assembly Plant starting this summer, city officials are pinning their hopes on the $2.4 million a year the tax hike would generate over the next five years. If it fails, Foltin said he will lay off 18 police officers, 18 firefighters, close the parks and recreation department and the three city pools.
The tax hike will be put before voters in an Aug. 2 special election if it is rejected in February, Foltin said.
Foltin jumped on the uncollected tax issue after state auditors said the city could be missing out on as much as $6 million. The mayor parlayed that into a campaign to hire the Regional Income Tax Agency (RITA) to take over the city's tax collection activities, which was fiercely opposed by Lorain Treasurer Lori Maiorana.
A report on a performance audit of the city recommended that Lorain either allow Maiorana's office to beef up its resources with new computer software and two full-time employees or go with an outside collection agency.
Maiorana said nowhere near that amount of money was out there, adding that to bring in $1.7 million more on the city's current 1.75 percent income tax rate there would have to be $98 million in unreported payroll income floating around Lorain.
''The money isn't out there in uncollected income tax,'' Maiorana said. ''I've said that all along. We are collecting all the tax money we can. As far as we believe, there is no extra tax money to be found.''
After his re-election, Foltin organized a seven-member volunteer committee of community leaders as the Uncollected Income Tax Task Force, which listened to both the advantages and disadvantages of hiring RITA.
After reviewing information and listening to various mayors of other cities who had supported and opposed RITA, the committee recommended that Maiorana be given the opportunity to purchase the necessary software and be given 18 months to see if she could turn things around.
Foltin says it is too early to say whether the issue of hiring RITA should be revisited in July when the committee is tentatively scheduled to review the progress of Maiorana's office in collecting income taxes.
''It is premature to say whether the issue would be revisited,'' Foltin said. ''I said I would stick by the committee's decision, and that is what I'm doing.''
''I haven't reviewed Auditor Ron Mantini's city's financial numbers at the end of the year, yet,'' Foltin added. ''He, I and City Council will review those numbers and see how the tax collection is going.''
Soon after the committee made its recommendation, City Council approved of Maiorana spending $100,000 for computer software, and so far she said she has spent $47,000 for the computer software, according to Mantini.
Maiorana said the software was installed in June, but she has only netted the city $75,000 in extra taxes delinquent from 2003 using the new software, and that she has yet to complete a full year using it.
Brian Baker, president of the IBEW Local 129, who chaired the uncollected income tax task force, said on Monday that the committee would reconvene to review the progress if asked.
''We'd go back and take a look at it to see if every effort was made to collect the money,'' Baker said. ''We were put there to make a recommendation.''
Other committee members are Brian Lockwood, CEO of Community Health Partners; attorney Jim Miraldi; Ben Norton, formerly of Lorain Products; Jean Wrice, president of the Lorain Chapter of the NAACP; Raul Ramos of Lorain County Community College; and Jim Kidd, president of Lorain National Bank.
Miraldi said that he didn't want to do anything to jeopardize the income tax issue, but said that the committee would reconvene if asked to review Maiorana's progress.
''No matter what's been uncollected, there's too many businesses that have been laying off and closing their doors, so the city has been losing out on revenue,'' Miraldi said. ''We were formed as a consensus building committee, but we didn't think there were millions out there. With the new schools construction project going on, we thought that there might be some extra money out there to go after.
''We didn't think that hiring RITA would've been an end-all for the city,'' Miraldi added. ''There's a lot of variables out there.''
Maiorana said she still needs two more employees in her office. She hired an additional employee last year, but was down two again when another employee retired on disability, according to Mantini.
Maiorana said the new computer software has allowed her better tracking capabilities, but that it doesn't identify delinquent taxpayers.
''A computer can't find money,'' Maiorana said. ''It doesn't beep when someone walks by on the street who isn't paying their taxes and it doesn't go into houses to search for money. The software gives you the capability of better tax reporting. Your income tax collections are only as good as the information you input into the computer.''
Councilman Tony Krasienko, D-3, who is the chairman of council's Finance and Claims Committee, also closely weighed the options of whether the city should hire RITA.
Krasienko said the new computer software in Maiorana's office has allowed the city to catch ''some'' of the taxpayers who have fallen through the cracks.
''We're catching more of the people who haven't filed, but not people who owe a lot of money,'' Krasienko said. ''We've added more tax filers, but not a lot of money.''
Krasienko said he didn't believe there were millions of dollars in unpaid taxes owed to the city, and if the city had hired RITA, it would have been waiting longer for taxes due to the city.
''If we would've hired RITA, it would've put our cash flow in dire straights,'' Krasienko said. ''RITA would've released the money to us 30 to 45 days after collecting it. Some days, the city was waiting on the income tax to come in to meet the city's payroll.''
''By allowing the treasurer to get the new software, it just proved that if given the proper equipment, the job of collecting taxes can be done in-house,'' Krasienko said.
Jim Schwab, a senior research associate for the American Planning Association in Washington, D.C., said the key for a city to make up for lost revenue is to diversify its economic base.
Schwab acknowledged that Lorain looking at losing $2.2 million a year in income tax from Ford leaving is ''a pretty severe blow.''
''A city with a diverse industrial base is less likely to take such a hit in revenue when an auto plant or manufacturing plant closes down,'' Schwab said. ''Steel and auto plants pose more challenges to convert into other facilities when they close. The more reliant you are on one or two types of industry, the more difficult the revenue is to replace ...''
Lorain's unemployment rate remained the highest in Lorain County at 9.1 percent at the end of 2004, according to Lillian Riggs, manager for the Lorain Bureau of the Ohio Department of Job and Family Services.
Of Lorain's labor force of 33,000 or employable workers, 30,000 of those people are working and 3,000 are unemployed, according to Riggs.
At the end of 2003, Lorain's unemployment rate was 9.6 percent, Riggs said
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