If Bexley city officials wondered whether their budget challenges weren't already serious enough, approval of the state budget removed all doubt.

"The state of Ohio budget that was passed last week will result in a loss of over 20 percent of Bexley's general fund operating income," said Ben Kessler, chairman of city council's finance and judiciary committee. "In balancing the state budget, with its comparatively small 10-percent deficit, Ohio legislators have passed on a deficit in excess of 20 percent to Bexley."

Kessler said Bexley is being especially hard hit by the state budget because of its status as a first-ring suburb with a high ratio of residential use and a low ratio of commercial and office uses.

"The local income tax in Ohio is a payroll-based tax, and because Bexley has very little office or payroll-generating uses, our collection of income/payroll tax is commensurately sparse," Kessler said.

"As an illustration of this - while Bexley's income/payroll tax rate is 2 percent, we only collect around 1 percent of our residents' income, due to the fact that most of our residents work outside of the city and pay the bulk of their local income/payroll tax to cities other than Bexley. As a result, most of our residents pay far more to Columbus or other surrounding communities in local income tax than they do to the city where they live and where they receive the bulk of their city services."

He said the elimination of Ohio's estate tax will have a dramatic impact on Bexley.

"The estate tax has been a saving grace for our community and for other communities like us - communities like Upper Arlington, Shaker Heights, and Oakwood, among many others," he said. " Unlike more peripheral suburbs that have seeming endless tracts of land with which to incentivize office developers in order to build up their payroll tax base, Bexley and other first-ring suburbs are physically unable to support an adequate payroll base because of our established land-use patterns, and we have survived the payroll tax model in part because of the estate tax.

"Relying on the estate tax has had its drawbacks, but without this equalizer, we are severely underserved by the payroll tax model," Kessler said. "By eliminating this funding source without providing alternative means for first-ring suburbs like Bexley to fund core local services, state legislators have abandoned communities like ours and given us very few tools with which to compete."

Overall, Kessler said, the new state budget did not include a lot of surprises but the loss of the estate tax was a major blow.

"Much of what was passed in the Ohio biennial budget was expected, and we've spent a lot of time analyzing and preparing for those changes," he said. "However, there was a question as to whether or not the estate tax elimination would make it into the budget, and its inclusion is a large setback to Bexley's funding model.

"Because the estate tax isn't phased out until January of 2013, the city of Bexley has some time to plan and prepare for its loss," he said. "It is extraordinarily important that we do so with realistic assumptions about the future, and with an implementable plan that can begin sooner rather than later so that any potential savings from further cost cutting can be realized and will begin to accrue immediately."

Kesler said city leaders must now come up with new solutions to deal with the city's looming financial crisis.

"Bexley can either take the challenge of this crisis as an opportunity to create an innovative, long-term strategic plan for stabilizing the budget, or we can respond to the crisis by becoming defensive, clinging to an unsustainable system and refusing to adapt," he said. "Our community is filled with innovative and visionary leaders, and I think that we are capable of taking these blows and using them as an opportunity and an inspiration."

While the city is prepared to place an income tax increase on the November ballot, Kessler said that alone will not solve the long-term issue.

"The 2.5-percent income tax that is currently being discussed won't fill the gap," he said. "It will help, but it will not allow us to continue to operate under the current paradigm.

"I propose that we view that as an opportunity -- as a challenge that cannot only be overcome, but that can be a catalyst for re-envisioning how our city provides services to its resident," Kessler said. "One side of this challenge is the expense side: How do we find efficiencies that in the past have proved so elusive? The other side of this challenge is the revenue side. One idea I'm currently thinking about is a push, led by like-minded townships and suburbs, to reform Ohio's local income tax system so that it's based on where taxpayers live, not where they work.

"That simple distinction would immediately solve our budget woes. It would allow us to lower our tax rate below 2 percent and provide better funding for our city services than we receive today," he said. "While it would have its detractors, I believe it would make for a much more streamlined and equitable system, and it's an idea I think we and other communities need to start exploring.

"But there are many others, and no matter what ideas have the most traction and the most merit, we need to be energetically pursuing all of our options. The weight of the current situation demands no less of a response than this."