The city of Grove City expects to lose nearly $1 million in state revenue due to components included in the state budget adopted earlier this year.

Most of the lost revenue -- an estimated $870,000 -- will come from the elimination of the "throwback rule."

"It's a big hit," said Richard Donnelly, the city's tax administrator.

In 2016, Grove City collected $24,324,866 in income tax revenue, he said.

The loss of $870,000 would equal about 3.6 percent of the city's 2016 income tax revenue, Donnelly said.

"Our 2016 general revenues were about $36 million, so the $870,000 annual loss of revenue is equal to about 2.4 percent of our 2016 general revenues," he said.

The "throwback rule" included a portion of the revenue a company that ships a product to another city, state or country receives from the sale of that product in a formula to determine the income tax the business owes to the city in which it's located.

"You're talking mostly about warehouse or distribution centers," Donnelly said. "There are about two dozen businesses in Grove City that this applies to."

Under the formula, a company's income tax was to be determined by adding together the amounts representing 10 percent of the business' product stock located in the home city; 50 percent of wages paid in its home city and 30 percent of the value of the products shipped out of its home city.

With the elimination of the "throwback rule," the last component -- the 30 percent value of products shipped outside of the home city -- will no longer be included in the formula beginning Jan. 1, 2018, Donnelly said.

"The only way we would get that revenue is if the product is shipped to an address in Grove City," he said. "It's still included if a product is shipped within the company's home location."

Grove City also stands to lose an estimated $60,000 because the state is designating a portion of the budget money that would have gone to local municipalities for other purposes.

About $35 million will be redirected for opioid treatment and $24 million will be distributed to townships and small villages.

"It's not really a question of how we will make up that lost money. I think the real issue is what are we not going to be able to do," council President Roby Schottke said.

There is no way the city would consider seeking a tax increase in order to recover the lost revenue, he said.

"And we're not going to do anything to reduce the level of our basic services -- police, service and parks and recreation," Schottke said.

If budget cuts result, they are most likely to happen in the area of capital improvements, he said.

"If we're planning to build a playground, then it might become a question of do we build it, are there components we eliminate from the plan or do we postpone it to another year?" Schottke said.

"This will have an impact on our upcoming budget discussions," said Jeff Davis, finance committee chairman.

"I'm guessing we're going to have to look at operations," he said. "We are already lean in that regard. I don't see a lot of fat in our day-to-day operations."

The brunt of any revenue loss will likely be infrastructure projects, Davis said.

"We have some big projects underway or in the works, like Stringtown Road on both ends," Schottke said.

Those projects would continue, "but repaving some of our roads, things like that, are items we may have to look at," he said.

Davis said the city is not likely to see the full impact of the state revenue loss in 2018.

"If that shortfall continues long-term, then it truly will be significant," he said.

Some relief may come when Mount Carmel's Grove City Medical Center and other development in the city start running.

"Mount Carmel is expected to bring about $2 million in income tax revenue," he said. "That should help. The shame is that money was expected to be in addition to our revenue, not replacement for lost revenue."

Gov. John Kasich proposed the elimination of the "throwback rule."

The rationale is that eliminating the portion of municipal tax resulting from the sale of products would free up revenue that companies would use to create more jobs, Donnelly said.

"I don't think that's likely to happen with warehouse and manufacturing businesses," he said.

Those type of businesses are increasingly replacing human workers with robots, Donnelly said.

"The concept of a manufacturing plant that we used to have -- a building filled with hundreds of people working -- just isn't the reality any more," he said.

Municipalities fear the elimination of the "throwback rule" will not help create more jobs for humans, but help companies fund their replacement with robots, Donnelly said.

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