State budget cuts are eventually expected to reduce the city of Delaware's income by $600,000 a year.

State budget cuts are eventually expected to reduce the city of Delaware's income by $600,000 a year.

Delaware City Council on March 21 started initial discussions on state budget cuts that would significantly reduce the Local Government Fund (LGF) payments the city receives.

The city expects to receive $1,137,528 in LGF for 2011.

Finance director Dean Stelzer wrote in a memo to city manager Tom Homan that the city's LGF is expected to drop to $842,665 in 2012 and $625,295 in 2013.

Because the city is on a calendar year, its 2011 budget reflects seven months of LGF funding based on the state's fiscal year 2011 allocation and five months based on the reduced fiscal year 2012 allocation, Stelzer wrote.

Stelzer said it appeared the LGF distribution will revert back to a formula for fiscal year 2014.

"It is probably safe to say that the allocation will not increase. If that is the case we will see a long-term reduction of about $600,000 per year in LGF funds," he said.

Stelzer also said Gov. John Kasich's budget appears to discontinue the reimbursement payments to local governments and schools for the tangible personal property tax. That tax, paid by certain businesses, was eliminated a few years ago when the state implemented the commercial activity tax. The city was scheduled to receive a reimbursement of $131,817 in 2011, $101,155 in 2012, and $82,783 in 2013.

Stelzer also said pension contribution legislation that Kasich wants to pass would reduce employers' contributions by 2 percent. Such a move would save Delaware $297,518 based on 2011 personnel levels, Stelzer said.

At the meeting, Stelzer said council needs to identify as soon as possible where and how it will address the budget's effects. Though the city has always dealt with budget issues, "this is a pretty substantial one," he said.

Homan said the impact of the cuts in 2011 would not be as severe as it would be in 2013 and 2014, when the city would have to decide whether to make up lost revenue or cut expenses. He also mentioned the inheritance tax, saying it was his understanding that Kasich wished to eliminate it entirely. Homan said the city gets an average of $300,000 to $350,000 annually in inheritance taxes from the state.

"These are not insignificant reductions to the city," Homan said.

Mayor Gary Milner asked Stelzer about the impact the LGF cut is having on other nearby cities. Stelzer said Westerville and Upper Arlington probably are in a situation similar to Delaware's, though Delaware might get slightly more LGF money than those cities.

Homan said that the sooner the finance committee could convene to address the issues, the better.

Council member Lisa Keller said council members should recommend to the finance committee their preferences regarding which departments should or shouldn't receive cuts.

She said substantial amounts are being cut, and the money must come from somewhere.

"At some point we're going to have to figure out where, and it's going to affect someone," she said.

Keller reminded council its estimate for road repairs this year is $1.2-million to $1.4-million, creating a serious situation.

Milner agreed that road resurfacing is "our greatest challenge."

Homan suggested that council look at the community survey the city conducted a few years ago to help determine how to rank services.

"Road resurfacing was one of the highest ones on the list," he said of the results.

Homan also discussed how Senate Bill 5 - a plan to weaken collective bargaining by public employees - would affect the city.

Homan said he is most concerned with how the bill could erode home rule.

A lot of what the city is able to do results from adopting a charter that establishes way the city operates, he said.

"The Senate bill is very prescriptive in terms of what we would be able to do and not do with respect to collective bargaining," he said. "It puts the state in a role that we never had them in before with respect to collective bargaining."

Specifically, Homan said the bill would make city council the final arbiter in handling disputes between an employer and a union, instead of a neutral arbitration panel. While this would appear to be in favor of management, "you don't know. You need to think about that in terms of what position it puts you in as the employer as well as the final arbitrator," Homan said to council.

Milner told ThisWeek the city would consider all possible budget cuts before putting a tax increase in front of voters. At this point, a tax increase is not a possibility, he said.

The city must address the loss in funds by making cuts, something he said it had done even prior to this recent state budget cut.

"For the last few years, we have trimmed. We have not filled positions that were vacated." Except for safety services, nothing else would be untouchable, he said.

Milner said one positive point for the city is the recent gain in income tax revenue. While not massive, the increase still means that the revenue is not in decline, he said. As of Feb. 28, the city had over $2.5-million in collected income tax revenue, about $387,566 higher than the amount collected at the same point in 2010. The collected income tax is almost 20 percent of the 2011 budget.