County Should Bite the Rebate Bullet

Once again, Hamilton County commissioners are tossing the ball down the line to avoid dealing with a serious issue. Well, at least two of the three commissioners are. After years of warnings, the county’s stadium account finally is about to run a deficit

Once again, Hamilton County commissioners are tossing the ball down the line to avoid dealing with a serious issue. Well, at least two of the three commissioners are.

After years of warnings, the county’s stadium account finally is about to run a deficit beginning next year. If you live within Hamilton County, that dire state of affairs will likely affect you in one way or another.

When voters approved a half-cent sales tax increase in 1996, they were told it would pay for all the costs associated with building new stadiums for the Reds and Bengals, along with other improvements along Cincinnati’s central riverfront.

To sweeten the pot for voters, county commissioners at the time (all Republicans, by the way) promised to include a property-tax rebate for homeowners. Thirty percent of stadiumrelated sales-tax revenues collected would be rebated.

Their theory was that a sales tax would be paid by everyone making any purchases in Hamilton County, including non-county residents, while the rebate would benefit a portion of the local residents affected by the sales tax. In other words, let other people pay for our fancy new stadiums, or so the logic went.

County sales-tax revenues in the early years (1996-99) didn’t disappoint: They easily exceeded the 3 percent estimate and resulted in cash surpluses for the stadium account. But trouble began as early as the fifth year, in 2000, when there only was a modest increase of 2.13 percent. Really, county officials shouldn’t have been surprised as estimates for a 3 percent increase every year ad infinitum were based on the myth of unlimited growth, the favorite delusion of free-marketers everywhere.

The more serious problem, however, occurred in 2001, when sales tax revenues decreased by a dramatic 2.66 percent after the September 11 terrorist attacks threw the U.S. economy in a ditch.

Since 2001, revenues have only reached or exceeded the 3 percent estimate twice (5.16 percent in 2004, and 3.64 percent in 2007).

During the six other years, it was below that amount — and experienced decreases in 2003, 2006 and 2008.

In fact, actual sales-tax performance has averaged only 1.4 percent over the past 10 years.

Because so many decreases occurred early in the 30-year financial model the county was using, it’s unlikely that the annual sales-tax performance in the later years can offset the

cumulative drops and return to the revenue levels planned in the model, according to county administrators.

Based on a calculation that sales-tax collections will decrease 3.4 percent next year from current levels, the stadium account will potentially have a $13.8 million deficit in 2010. The amount could be larger or smaller depending on inflation and other factors. Within a few years, the deficit is projected to rise to $25 million.

This leaves county officials with some stark options. The likeliest choices are either reducing or eliminating the propertytax rebate altogether; dipping into the general fund, which pays for basic services to residents; or some combination of both.

Through October, a total of $800 million has been collected from the sales-tax increase approved by voters in 1996.

The dilemma, though, is that a total of $963.8 million was expended through this summer.

Over the past month, the three commissioners — Democrats David Pepper and Todd Portune, and Republican Greg Hartmann — haven’t been able to agree on a plan to avoid the stadium fund deficit.

In late November, Pepper proposed reducing the amount of the property-tax rebate to cover the deficit. The plan would’ve meant the owner of a $100,000 home would see his or her rebate drop from about $50 per year to about $30 per year.

That seems like small change compared to dipping into general fund revenues, which would require cutting some county services or laying off some county workers. Still, Portune and Hartmann were afraid of the political backlash and defeated Pepper’s plan.

Around the same time, Portune privately pitched a plan to other commissioners that would’ve raised the sales tax by a half-cent for one year on an emergency basis. Portune believed that would allow for a few more years of solvency until projects like The Banks and the planned downtown casino were built and could boost tax revenues.

The plan never made it to a vote, as neither Pepper nor Hartmann would consider it.

Later, Portune and Hartmann agreed to a plan that called for borrowing $5.5 million from the stabilization fund, delaying $5 million in required payments to Cincinnati Public Schools (CPS) and finding another $4.4 million in the county’s general fund by October. The pair stressed that the general fund cash wouldn’t prompt layoffs or affect public safety but didn’t say what exactly would be cut.

That plan also was dead on arrival because CPS already had told county administrators they wouldn’t accept any further delay in payments after having accepted one for the last few years. In 2006, CPS agreed to restructure the payment schedule to help the county avoid a deficit that year. A partial payment was made in 2006, and no payments were made in 2007-09. Payments begin again next year. For 2010, the county’s payment to CPS totals $10.9 million. Overall, the deal calls for payments to CPS until 2032, totaling $255.7 million.

Last summer, the city of Cincinnati also tried to cover a deficit by deferring a payment to CPS. It never ceases to amaze me that elected officials routinely tout improving the quality of the public school system as crucial to reviving the region and attracting new residents, then turn around and try to cut school funding when they’re in a budget jam.

Portune and Hartmann are promising to come up with another plan in the next few weeks.

The ultra-right Coalition Opposed to Additional Spending and Taxes (COAST) are the main opponents to reducing the property-tax rebate. It claims the rebate was an unbreakable pledge to voters, and the deficit is due to over-spending by Democrats Pepper and Portune. Baloney.

An all-Republican commission approved the sales-tax plan, negotiated the lopsided lease with the Bengals that costs the county tens of millions of dollars in perks for the team and approved overtime pay to rush construction of the Bengals stadium. Also, Republicans controlled the commission when it earlier decided to dip into reserve funds to avoid a deficit — a strategy that merely delayed but didn’t solve the problem.

Even more incredulously, COAST is partially responsible for the current budget dilemma, as bloggers and others have noted. It was Chris Finney, a COAST leader, who helped push to get the tax increase on the ballot in 1996 and who worked to defeat it. County officials then added the property tax rebate to the tax deal to help win a victory at the polls.

Without the rebate, the deficit likely wouldn’t have occurred and the long-delayed Banks project probably would be nearer to completion.

Let’s be clear: A sales tax is regressive and hits low-income residents the hardest. Meanwhile, the property-tax rebate offers only minimal relief to middle-income homeowners; it mostly benefits wealthy landowners.

It’s past time that Portune and Hartmann stop playing their game of political chicken, stand up to demagogues like COAST and reduce the near-meaningless tax rebate.