Income Tax Credit Reduction

FAQs about the Proposed Income Tax Credit Reduction



City Council is discussing a proposed income tax credit reduction and is gathering citizen input regarding whether or not to put the issue on a future ballot. The tax credit reduction is being considered to cover a funding gap between the improvements citizens continue to request and the current level of funding available. Below is information about the proposed tax credit reduction, why it is being proposed, and how it would affect our citizens.

1. How is quality of life achieved and maintained in a healthy community?


To maintain a healthy, successful community requires balance and inter-dependency among several factors. Three major elements create the rings of inter-dependency:

  • Quality of Life: Our strong schools, businesses, property values, open space, services, etc, are contributing to our high quality of life in Hudson
  • Infrastructure & Assets: Are maintained with level funding. Must invest in and improve infrastructure and assets. 
  • Financial Condition: Recently, Hudson and all cities in Ohio have experienced the loss of state funding. To maintain a healthy balance will require new revenue growth, which requires investment to create jobs and value.
All are interconnect and we must stay somewhere near the blue in the middle in order to be a high-performing cIty. If skewed in one direction or another, the health of the community declines. Maintaining this balance is why the City is considering this action.
Quality of Life Graphic

1. How is quality of life achieved and maintained in a healthy community?


To maintain a healthy, successful community requires balance and inter-dependency among several factors. Three major elements create the rings of inter-dependency:

  • Quality of Life: Our strong schools, businesses, property values, open space, services, etc, are contributing to our high quality of life in Hudson
  • Infrastructure & Assets: Are maintained with level funding. Must invest in and improve infrastructure and assets. 
  • Financial Condition: Recently, Hudson and all cities in Ohio have experienced the loss of state funding. To maintain a healthy balance will require new revenue growth, which requires investment to create jobs and value.
All are interconnected and we must stay somewhere near the blue in the middle in order to be a high-performing cIty. If skewed in one direction or another, the health of the community declines. Maintaining this balance is why the City is considering this action.

3. Who pays income tax to the City of Hudson?


Hudson has a 2% income tax rate that is payable on wages that are earned in the City of Hudson. Retired residents with no earned income pay no City income tax. Residents who work outside of Hudson pay income taxes to the community in which they work. They currently receive a 100% credit for taxes paid to their work community. Hudson residents who work in a City with an income tax rate of 2% or higher pay NO income tax to the City of Hudson.
Property Tax Pie Chart 2016 png
Income Tax Pie Chart

4. What percentage of those paying income tax to Hudson actually live in Hudson?


Only approximately 30% who pay income tax to Hudson live in the City of Hudson, with 70% living outside of Hudson.

5. Of taxpayers living in Hudson, who ends up actually paying income taxes to Hudson?

Due to the 100% tax credit, 55% of those who live in Hudson pay no income tax to the City to support City services.
Residents Pay Hudson Incom Tax Pie Chart

6. What is the City's current financial situation?


The State of Ohio reduced the amount of Local Government funding given to Hudson from the State by $400,000 annually. The State Legislature also eliminated the estate tax, which reduced the City's revenue by an additional $1.4 million each year. This permanent $1.8 million annual loss has reduced the City's General Fund by approximately 10%. In addition, due to historically low interest rates, the City's investment income has declined more than $650,000 per year. To address these losses, many cities have either increased their income tax rates or reduced their income tax credit rate, and others are considering a tax credit reduction. In spite of the significant loss of revenue, Hudson has been able to maintain its AAA bond rating and adequate reserves due to cost control measures and conservative budgeting. The view the City's 5-Year Financial Plan, click here.

7. How has the City resolved this lost revenue? 


The City has absorbed these funding cuts through many savings measures including:
  • Cut over $2 million from operating budget in staffing through attrition and job consolidations and reorganization.
  • Took advantage of low interest rates to refinance debt aided by our AAA bond rating.
  • Transferred our sanitary sewer system and its liability to Summit County.
  • Generated savings through re-evaluating and eliminating underutilized software.
  • Implemented new LEAN training to drive efficiency.
  • Began construction of a brine well to produce our own brine, which will reduce the cost of water treatment as well as snow and ice control.
Through fiscally conservative management, we overcame this funding challenge and were able to maintain current service levels without going to the voters for additional tax revenue.

8. What is the current financial challenge?


Infrastructure needs continue to be identified by the public as important, particularly road improvements, sidewalks, hike and bike trails, and storm water. While the City can continue to maintain our current level and quality of services, we cannot move forward with infrastructure projects at the faster pace our citizens are demanding.

9. How would additional funding help achieve the level of infrastructure improvements that citizens want?


As an example, the City is currently under a 34-year road replacement cycle. To achieve optimum road conditions would require a 20-year replacement cycle. What would a 20-year replacement cycle mean?

Road Replacement
  • A 20-year replacement cycle would cost $2.5 million a year
  • Currently, we have the ability to pay $1.25 million a year.
  • That leaves a funding gap of $1.25 million annually.
Connectivity (connecting in the community with sidewalks and bike & hike trails)
  • At the current rate, it will take 30 years to complete the Connectivity Plan.
  • With additional funding, it could be completed in 5 to 10 years so that those paying for it can begin to enjoy it now.
Stormwater
  • Presently funding stormwater maintenance and repairs and have made significant improvements to the stormwater system over they past 12 years.
  • With additional funding, we could move forward and complete identified capital improvements that will help minimize the risk of flooding.
 
Infrastructure
 Current
Annual Funding
 Citizen-Driven
    Project Funding    

Funding Gap
Roads $1,022,000          $2,150,000 $1,128,000
Connectivity Plan                     $100,000 $1,760,000 $1,660,000
Storm Water $1,000,000 $1,850,000 $850,000
 TOTAL $2,122,000    $5,760,000           $3,638,000

10. What does the City receive from NEORSD stormwater funding?


The Northeast Ohio Regional Sewer District funding is distributed to cities on a reimbursement basis in the form of grants for specific projects. No specific annual amount of money is allocated to each city.

11. How do we find new,  increased revenue sources?


To meet our citizen requests to move ahead with infrastructure improvements at a faster pace requires not only seeking savings and cost efficiencies in the City's operations but also requires finding new revenue sources. Hudson has recently made investments in forward-thinking projects that will bring a return on investment, increase Hudson's quality of life, and generate new revenue. These projects include Velocity Broadband, Downtown Phase II, and the Youth Development Center (YDC) development, among others.
  • Velocity Broadband: Bringing high-speed fiber internet service to Hudson was a priority for our businesses and for our economic growth. The City invested in building a Gigabit high-speed network for businesses that will help our businesses grow in Hudson and will attract new businesses to our City. This means new income tax revenues through job creation. We expect to recoup our initial investment for Velocity Broadband in 3 to 5 years and anticipate it becoming a new revenue source for the City in the future.
  • Downtown Phase II: The development of 26 acres west of First & Main into commercial office space and varied residential housing for young professionals and empty-nesters will put two prime tax-exempt properties back on the tax roles, generating additional revenue for our schools through the property tax and for City government through income tax from the new jobs created. 
  • Youth Development Center (YDC): Hudson purchased the YDC property as a long-term investment that will bring in additional revenue when fully developed. Without the City's intervention, the property would have become residential subdivisions without the opportunity for job creation and new income tax revenue.  
While these projects are City initiatives to find alternate revenue sources, they will not address citizens' desires for the quicker completion of long-term projects such as roads and connectivity.

12. What is an income tax credit reduction?


In general a person must pay income tax in the city where he/she lives and also where he/she works. Hudson has a 2% income tax rate that is payable on wages earned in the City.  We also offer a 100% credit for those individuals who live in Hudson but who work outside of Hudson. The City is considering reducing the percentage of credit given from 100% to 75%,up to the 2% rate.

13. Who will be impacted by this proposed change?


Residents who live and work in Hudson will not be impacted.  Retire individuals without earned income also will not by affected by the tax credit reduction. Those who live in Hudson but work outside of Hudson will be impacted based on the current tax rate of the workplace city.

Examples based on an earned income of $100,000 per year.
 Scenario  Workplace Tax  Hudson Tax w/ 100% credit  Hudson Tax w/ 75% credit
 Live and work in Hudson  $2,000  $0  $0
 Retired, no earned income  $0 $0  $0
 Workplace city has 1.5% rate  $1,500  $500  $750
 Workplace city has 2% rate  $2,000  $0  $500

14. Will my taxes increase, decrease or stay the same with the new proposal?


Use the calculator below to determine the amount of additional income tax that would be due to the City of Hudson based on the proposed tax credit reduction. Enter your gross wages and the income tax rate for the community in which you work. The calculator should only be used by Hudson residents who live in Hudson and work outside of Hudson. All other residents will not be impacted by the reduced credit.

Note: The amount of tax credit you receive for taxes paid to your workplace community is limited to 2%. For example, if you work in the City of Akron you pay 2.25%. With the proposed reduced tax credit, Hudson would give you a credit for 75% of 2% of what you pay to Akron.

15. How was the percentage determined?


The percent was determined based on infrastructure funding gaps in the citizen priority infrastructure areas of roads, sidewalks bike and hike trails and storm water management. See question #9 above for details about these priority areas.

16. How much additional revenue will this generate for the City?


Reducing the tax credit from 100% to 75% will generate approximately $3.6 million in revenue per year that will be used to fill the "funding gap" noted in Question #9. 

17. How will this new revenue be used?


The City's General Fund is the primary source for street construction and maintenance, sidewalks, bike and hike trails, and other needed infrastructure that impacts our quality of life. The additional funding from a tax credit reduction would be specifically allocated for these infrastructure projects.

18. What income tax credits do other cities give for residents who work outside the city?


Approximately 52% of Regional Income Tax Agency (RITA) cities have a tax credit of less than 100%. Citizens can visit the Regional Income Tax Agency website to see city tax rates and credits. Some examples include:

City  Tax Rate  Tax Credit
Boston Heights  2% 100%
Brecksville  2% 87.5%
Chagrin Falls 1.5% 75%
Chardon  2% 50%
Cleveland Heights 2.25% 50%
Orange  2% 60%
Pepper Pike  1% 50%
 

19. Will this change require a vote of the people?


Yes, our City Charter requires a change in the income tax credit percentage to be approved by the voters of Hudson. 

20. Why not consider an across the board income tax rate increase?


A tax credit reduction was considered instead of an overall rate increase because we had a rate increase in 2004 which largely affected those who live and work in Hudson. Most Hudson residents who work live in Hudson but work in a different city were not impacted by that increase. The majority of Hudson residents were not impacted by that increase.

21. Can revenue from the tax credit reduction be used for other purposes?


If City Council decides to place the measure on the ballot, the revenue generated from the ballot measure would be set aside specifically for infrastructure projects.

22. How many City Council members will be impacted with an increase in their income tax due to the City of Hudson?


Over 50% of Council members, the Mayor and their families will see an increase in their taxes due as a result of reducing the tax credit.

23. Why can't the City fix the roads with the money I already pay in income tax?


If you live in Hudson and work outside of the City, your income tax dollars are going to the City where you work, so essentially, you are paying for that city's roads, infrastructure and services.  The tax credit reduction will affect those who work outside of Hudson, but who use Hudson streets, parks, trails and sidewalks.

Currently, Hudson can fix the roads at a road replacement schedule of about 34 years, and we will continue to do so at this rate.  We also allocate approximately $100,000 a year to sidewalks and trails. To get to the citizen requested 20-year ideal road replacement schedule and to complete the City's Connectivity Plan in approximately 5 years instead of 30, the City will need additional funding.

24. What is the Connectivity Plan?


A Connectivity Committee was appointed by Hudson City Council to review and make recommendations on a Connectivity Plan to provide safe, community-wide connectivity through sidewalks and bike/hike trails. To view the Connectivity Plan, click here.