Upper Arlington is on pace to collect more than $15 million in income taxes for the first time in its history.

Upper Arlington is on pace to collect more than $15 million in income taxes for the first time in its history.

Upper Arlington Finance Director Cathe Armstrong said last week that 2012 will be a record year for the city, as she projects it will collect approximately $15.4 million in income tax revenue this year.

If that occurs, it not only would mark the first time UA has exceeded $15 million in income tax collections in a single year, but it will be just the third time the city has collected $14 million or more in annual income taxes.

The record for income tax collections was set in 2011, when the city took in approximately $14.7 million, Armstrong said. Prior to that, 2005 was the only other year the city surpassed the $14 million mark in income tax collections.

"When we hit 2008, the recession started and our income taxes started dropping off," she said. "We really didn't rebound until last year.

"This year, it's increased greatly."

In 2011, Armstrong credited gains in the state and local economies for the boost in income tax collections, in addition to a windfall from the redevelopment of the Kingsdale Center.

This year, the continued growth of the economy has seemingly resulted in local businesses adding employees and providing wage increases to employees they've retained, she said.

"Last year, we had almost an 8-percent increase in our tax collections," Armstrong said. "This year, we anticipate another 5 percent increase.

"I think as the economy has turned around, more people are working and people are beginning to get raises again. Pretty much across the board in Franklin County, the economy here is stronger than what it was 24 months ago."

It's good news for the city, which sets aside 13 percent of its income tax collections to pay off city debt.

The remaining 87 percent goes into the general operating fund, which finances everything from city services to employee salaries and benefits. A portion of that fund also helps pay for local road maintenance and other infrastructure improvements.

Aside from immediate costs, Armstrong said the boost in collections should help the city, at least initially, absorb part of the blow it will sustain through the Ohio legislature's continued cuts to the Local Government Fund.

Five years ago, Armstrong said, Upper Arlington received $2.5 million in such funds. In 2013, the city's local government funding will drop to $1 million, she said.

"The income tax rebound was very crucial because we needed to replace that revenue," she said. "What it's not going to be able to replace is additional cuts we're going to sustain from the estate tax."

Ohio's estate tax, imposed on the transfer of a "taxable estate" of a deceased person, has been eliminated by the Ohio General Assembly. It officially will go away on Jan. 1, 2013.

This year, Upper Arlington expects to collect $5.3 million in estate taxes, Armstrong said.

As a matter of city policy, Upper Arlington directs the first $2.1 million collected through the annual estate tax to the general operating fund.

Any amount over $2.1 million that's collected through estate taxes is used for capital improvements.

"In 2014, we expect all that (estate tax) revenue will be gone," Armstrong said. "This is something we have to tackle: How do we continue our capital improvement program without this funding?"

Discussions for withstanding the estate tax loss are expected to come up as soon as next Monday, Nov. 5, when Upper Arlington City Council is slated to open hearings for its 2013 budget.

After maintaining an approximately $29-million operating budget in 2012, Armstrong said she expects Upper Arlington City Manager Theodore Staton to propose a $28.8-million budget to council on Nov. 5.

Armstrong said she anticipates the city will be able to fund its capital improvement program with borrowed money and estate taxes it will collect from 2012 returns for both 2013 and 2014.

After that, however, allocating the funding for road work and other infrastructure projects becomes more difficult, as does proposing a balanced operating budget.

"We anticipate all of our estate tax money will have been used up in three years," she said. "We anticipate bringing a balanced budget to city council for 2013. We've got work to do for 2014."

In Ohio, cities have limited options for generating significant new revenue.

In addition to collecting more taxes through economic development, most are limited to raising income taxes or millage directed to them through property taxes.

In either case, city residents must vote for the tax increases.

Upper Arlington currently has no plans to place a tax measure before voters. Armstrong said the last time the city's income tax rate was increased -- it's currently 2 percent -- was in the early 1980s.