Mayor Becky Stinchcomb used the Jan. 30 State of the City address as a platform to detail her tax-reform recommendation, increasing Gahanna's tax rate from 1.5 to 2.5 percent.
She has said Gahanna needs to either increase its revenue or make serious cuts to have a balanced budget in the future.
During the address at Middle School West, Stinchcomb said the local income tax is the largest source of revenue in the city's general fund.
In the five-year forecast, she said, income tax is expected to make up approximately 66 percent of total general-fund collections each year.
The local income tax is levied on wages and business earnings.
"What a person pays each year is primarily based on where they work, which is why it is helpful to think of the income tax as the 'where you work' tax," Stinchcomb said. "This is in contrast to the property tax, which is based on where you live."
When examining the local income tax, she said, the key components are the rate and the credit. The rate is a percentage of earned income that is due to the city.
Tax rates vary by municipality, and per Ohio law, any rate over 1 percent must be approved by a vote of the people.
Gahanna's rate is 1.5 percent and has not increased since 1977, Stinchcomb said.
Cities may opt to provide their residents with credit for the taxes they pay to their work city.
In central Ohio, most cities provide 100-percent credit for the taxes residents pay to their work city, Stinchcomb said.
When a city provides full credit, those residents who work in a city with a tax rate the same or greater than the rate of the city they live in would pay nothing to their city of residence.
Since 1986, Gahanna has provided residents with a reduced credit of 83.3 percent for up to 1.5 percent of the taxes residents pay to their work city.
"This means that all working residents pay at least a portion of their earned income to Gahanna," Stinchcomb said. "It also means that residents who work in a city with a tax rate greater than Gahanna's pay a larger portion of their income for local tax than most in the region."
In Franklin County, Reynoldsburg is the only city of Gahanna's size that has an income-tax rate of 1.5 percent.
Columbus, Bexley, Whitehall and Worthington have a 2.5-percent tax rate. Cities with a 2-percent or 2.25-percent rate include Dublin, Westerville, Hilliard and New Albany.
"(This) begins to explain why many of the surrounding communities have more services and facilities than Gahanna," Stinchcomb said. "Their available resources have been greater and, for many, greater for a long time. This lack of higher investment is causing Gahanna, in my view, to fall behind."
She said the goals of the city administration in identifying a potential reform scenario were multiple.
"Gahanna is a location of choice for many employers, and our strong employment base leads to a large portion of our tax receipts coming from withholdings," Stinchcomb said. "The administration looked for a scenario that would appropriately balance the cost of city services with the end-users, including those who work here."
Secondly, she said, the administration sought to identify a solution that provides the right amount of revenue annually.
"We worked to develop a robust model to predict the revenue capabilities of a variety of rate and credit scenarios and identify which scenarios create the revenue needed to sustain our ongoing operational and capital needs," Stinchcomb said.
Thirdly, the reduced-credit scenarios highlight the need the administration sees to simplify the city's tax code.
"The complexity of the reduced-credit calculation is a common complaint that we hear from taxpayers, and our credit is unique in the region," she said.
Employees who work in Gahanna and live elsewhere typically pay a 2- to 2.75-percent total effective tax rate, with the additional amount going to their residence city, Stinchcomb said.
"Reforming our tax rate could keep a larger share of that money in Gahanna," she added.
The city calculated different tax-reform scenarios, with a tax rate of 2.5 percent with 100-percent credit being the administration's recommendation to City Council and voters.
By instituting a 2.5-percent rate, Stinchcomb said, people who work in Gahanna and live in cities like Columbus would send their full 2.5 percent of local income tax to Gahanna, rather than a portion of it leaving the city.
"The full 100-percent credit gives the largest segment of Gahanna residents -- those who work in a 2.5-percent city -- a break by effectively reducing the total amount they pay in local income taxes each year," she said.
This scenario also produces the right amount of additional annual revenue, she said.
"We project that this scenario would bring in approximately $8 million per year -- the same as our projected deficit during the forecast period," Stinchcomb said. "I want to point out that this is not the scenario that brings in the most revenue. However, it is the one that meets our revenue needs."
Stinchcomb said a recommendation to increase total tax revenues is never taken lightly by any mayor or any city official.
"But after a careful and well-thought-out process, we are led to the conclusion that this is the proper and right step forward, to assure our vision and mission, to keep Gahanna well-maintained and properly improved to secure our status as an exceptional city for years to come," she said.
If council decides to place the issue on the ballot, a page on gahanna.gov will be dedicated to the proposal that includes related documents, a Frequently Asked Questions sheet and a tax calculator so residents could enter personal information to see how the proposal would affect them.
Twelve-year Gahanna resident Lynne Vermillion said she would vote in favor of the tax-rate increase. She said Gahanna is a great place to live, and she would like it to have programs so she doesn't have to travel somewhere else.
"We would all like a great recreation center like Westerville," she said.
Vermillion said she admires Stinchcomb for her bravery to request a tax-rate increase.
"It's a difficult topic to cover," she said.
Eight-month Gahanna resident Adam Rich said he attended the State of the City address to learn more about the tax issue.
"I'm torn," he said. "I have questions. Local and city taxes are the most important tax anyone pays. You see results of your money directly."
At the same time, Rich said, one has to be fiscally conservative.
"Are we keeping up with the Joneses?" he asked. "Is that the driver? I need more information to decide."