Finance director Bob Dvoraczky on Monday presented Grandview Heights City Council a grim financial outlook for the city if an income tax increase is not approved by voters this year.

Finance director Bob Dvoraczky on Monday presented Grandview Heights City Council a grim financial outlook for the city if an income tax increase is not approved by voters this year.

All seven council members attended Monday's finance committee meeting and heard Dvoraczky project that without an income tax increase, the city would run out of cash before the end of 2011.

Council will be deciding over the next few weeks whether to place an income tax measure on the May ballot.

The income tax increase voters approved in 2005 will expire at the end of this year. The tax was increased to 2.5 percent for the first three years and the rate is at 2.25 percent for 2009 and 2010. Next year it is scheduled to fall back to 2 percent.

At the end of 2009, the city had a general fund carryover of $3.2-million, or about 121 days of reserve cash, Dvoraczky said. The balance is expected to decrease to just a little more than $2-million by the end of 2010, leaving 67 days of reserve cash.

The city's revenues in 2010 are expected to be about $1,022,489 below the approved 2010 operating budget of $9.5-million, Dvoraczky said.

Other factors, including an anticipated revenue reduction of $110,000 due to higher than expected tax refunds to individuals, will result in a decrease of the year-end balance to a little more than $2-million, leaving 67 days of reserve cash, he said.

The city is expected to receive $174,905 in Grandview Yard revenue and $10,000 in Yard construction job income taxes.

His "hypothetical scenario for 2011" includes some items that "are real solid and some that are more guess work," Dvoraczky said.

The scenario assumes that the income tax rate will return to 2 percent, which would result in an estimated loss of $711,000 in income tax revenue from 2009, he said.

No change in the operating budget from 2010 is assumed in the scenario.

"I'm assuming that in 2011 we will have to make a ($300,000) contribution to the capital improvement fund" because there will be no new investment in 2010, Dvoraczky said.

He said he expects an increased employer contribution to the Ohio Police and Fire pension fund will be mandated by the legislature, totaling $94,000, and that anticipated retirements in 2011 will result in an estimated cost of $130,000 for accrued leave,

The scenario also assumes $100,000 will have to be set aside as a contingency in case of unexpected supplemental requests, Dvoraczky said.

Projected Grandview Yard totals $45,931 from payroll taxes from occupancy and $85,122 from construction jobs, he said.

Assuming the above expenses and that the 2011 budget is unchanged from 2010, the daily estimated cash needs for 2011 over 365 days would be $27,870, Dvoraczky said.

Without an income tax levy, the city would face a $188,824 deficit in its cash reserve by the end of 2011, he said.

If the income tax rate reverts back to 2 percent as scheduled in 2011, the city's total income tax revenue is expected to be about $4,140,792 for the year, Dvoraczky said.

If the current 2.25 percent rate were maintained, the city's income tax revenue for 2011 would total $4.8-million, he said. An increase to 2.5 percent with a 2 percent cap would bring in $5.2-million in revenue.

A 2.5 percent tax rate with a 2.25 percent cap would bring in an estimated $5,072,069 and with a 2.5 percent cap, it would provide $4.7-million in revenue, Dvoraczky said.

The city received $5.8-million in income tax revenue in 2008, a figure that couldn't be sustained because it was due to net profit taxes and withholding taxes that were unusually high, he said.

Income tax revenue fell by $1-million in 2009 from the previous year, Dvoraczky said. About $780,000 of that decrease was due to the income tax rate falling to 2.25 percent and the rest was due to the economy.

The information Dvoraczky provided Monday "doesn't paint a pretty picture," Mayor Ray DeGraw said.

The city budget is expected to increase by an average of 3.5 percent each year, he said.

The city is being hurt by the changes in retirement contributions and the increased cost of health insurance, which now makes up about 10 percent of the city budget, DeGraw said.

The administration was planning to present what DeGraw called "different scenarios for how we can make it through the next few years" at the finance committee's next meeting, which was scheduled for Wednesday, Jan. 27.