MEMORANDUM To: Council President Schutt and Members of Council From: Diane Wolgamuth, Director of Administration Date: June 25, 2021 Re: Ohio House Bill 110 – Proposed Retroactive Tax Refunds

As Mayor Bodnar reported at Monday’s Council meeting, it remains uncertain if the State legislature will allow for retroactive repayment of municipal income taxes to employees who worked from home during the pandemic (or the employee’s home community). The Ohio House had proposed retroactivity to January 2021, but the Senate has proposed an amendment that would allow requests for tax refunds to reach back to tax year 2020. The amendment is part of the budget bill which is currently in Conference Committee and is expected to be voted on by June 30, 2021.

Working with the Law Department and the Mayors & Manager Association, we opposed retroactivity through communications with State Representative Phil Robinson and State Senator beginning in mid-April. As this matter progressed, we sent letters to members of the House and Senate leadership as well as the members of the Conference Committee debating the issue. Mayor Bodnar, Ron Wynne and I have also had telephone communications with Governor DeWine’s office. At this point, we feel confident that the Village’s position is understood, even if we are not confident that the Ohio legislature will reverse its course. Attached are copies of some of the letters to give Council a better understanding of the arguments we made against retroactivity.

The latest update is that anticipated funds coming to Mayfield Village from the American Rescue Plan Act (ARPA) have been reduced from $654,273 to $349,554 as a result of the Ohio legislature determining that Ohio townships are eligible for distribution as well.

We will keep you advised as we receive further updates. cc: Mayor Brenda T. Bodnar Law Director Anthony J. Coyne Department Heads

Attachments:

• Letter to the Majority and Minority Caucuses dated June 23, 2021 • Letter to State Senator Matt Dolan dated June 3, 2021 • Letter to State Representative Robinson and State Senator Dolan dated April 19, 2021

June 23, 2021 The Honorable The Honorable The Honorable State Senator / District 12 State Senator / District 31 State Senator / District 29 Via email to [email protected] Via email to [email protected] Via email to [email protected]

The Honorable Rob McColley The Honorable Matt Dolan The Honorable State Senator / District 1 State Senator / District 24 State Senator / District 25 Via email to [email protected] Via email to [email protected] Via email to [email protected] The Honorable Nickie J. Antonio The Honorable The Honorable Hearcel F. Craig State Senator / District 23 State Senator / District 3 State Senator / District 15 Via email to [email protected] Via email to [email protected] Via email to [email protected]

Re: House Bill 110 – Proposed Retroactive Tax Refunds Dear Members of the Ohio Senate Majority and Minority Caucuses, I was disappointed to learn that the Ohio Senate’s proposed budget modifies municipal income tax employer withholding rules for COVID-19-related work-from-home employees to allow such employees to apply for tax refunds retroactive to tax year 2020. The House’s sub-bill that allowed refunds retroactive to January 2021 was already going to impact most cities in Ohio. Permitting retroactivity back to 2020 will be devastating for some. Not All Cities Will Be Compensated for Their Losses by the American Rescue Plan Act (ARPA). The Senators that are proponents of retroactivity have argued that federal assistance received through ARPA will compensate cities for any losses. I have seen two reports—one from RITA estimating the future impact of permanent work-from-home employees, and one from Cleveland State University, estimating the potential refund liability of NE Ohio cities in 2021 as well as the amount of assistance expected from ARPA. In many cases, assistance from ARPA will not offset the losses. Because federal support through ARPA is calculated based upon resident population only, cities like Mayfield Village that have substantially more workers than residents are not receiving anywhere near enough assistance to make up for the potential losses. Mayfield Village was expecting to receive $654,273 in ARPA funds, however, with townships now eligible to receive distribution, our allocation has been reduced to $349,554. The Village’s potential refund liability, just for 2021, is projected to be up to $9.1 million. If retroactivity is permitted to 2020, liability could double and many more Ohio cities could face a similar situation. Staffing Has Been Maintained Throughout the Pandemic Based on Promises Made. This is not the time to hit municipalities with any additional losses. Such additional losses are really two-fold. First, employees continuing to work from home will reduce future income. Second, payment of unanticipated retroactive tax refunds will require that future expenditures be cut. Municipalities like Mayfield Village that have large numbers of employees coming into their borders daily have put in place necessary infrastructure and personnel to support those employees. Cities were told by Governor DeWine and then by the Ohio legislature that revenues would continue to come in as usual until the pandemic was over and the emergency declaration was lifted. To now require that tax revenues be returned or redirected is patently unfair to municipalities that have worked hard to build a strong business base and have maintained staffing throughout the pandemic so as not to further burden the State’s unemployment rolls.

June 23, 2021 Page Two

Facilitating Refunds Will Be an Administrative Nightmare. As I understand it, there is no mechanism in place for refunds to be redirected to a resident’s home community if refunded from the host community unless both communities share the same collection agency, like RITA. At best, this is an unnecessary retroactive shifting of monies between municipalities and, at worst, it will be a loss to not only the host community but also the resident’s home community if the two communities are unable to coordinate the shifting of funds.

Another potential difficulty will be verifying the hours that employees worked remotely and that they actually worked from home. During much of 2020 and 2021, many employees did not work exclusively from home or at their place of employment but rather utilized a hybrid approach. Many employees did neither and left town (and sometimes the state) as they knew that it would be months before they had to physically return to work. I suspect that many employers who continued to pay employees while they worked remotely did not track the employee’s exact location. It is hardly fair for an employee or the employee’s home city to be refunded local tax revenue for this period if the employee was actually working out of the state.

Impact on Local Businesses and Interference with Existing Contracts. Over the past decade, many cities have found themselves in a position to have to offer incentives to local businesses in order to keep them within their borders. Competition is fierce among cities and rather than poach from each other, we work fervently to keep our business base stable. More often than before, income tax rebates are offered to businesses that remain and grow. I suspect that our method for calculating these tax rebates is common among cities—it is based on reaching agreement on a minimum baseline of local income tax revenue. Only if the company reaches this baseline in a given year is the rebate paid. In Mayfield Village, our 2020 rebates have already been paid; this is surely true of other cities as well. If refunds retroactive to 2020 are provided to work-from-home employees, it is likely that companies will fall below the baseline and become ineligible for the rebate, forcing repayment of these funds. In other words, the Senate proposal would interfere with obligations under existing contracts entered into under and reliant upon then-existing law. Impact on First Responders. Again, I don’t believe that Mayfield Village is different from most other municipalities. On average, 75% of our expenditures are for employee payroll and benefits, more than half of which is devoted to safety forces. As I talk to other local Mayors, it is clear that we have all worked hard to get through the pandemic without laying off employees, while at the same time maintaining services and continuing to honor our collective bargaining obligations. As we all know, when local revenues go down, first responders are the first employees to be reduced, making us all less safe. This legislation will effectively “defund the Police” (along with Fire, EMS and the other fundamental services we provide) and is an irresponsible effort to refund tax dollars at the expense of public safety. To give you some specifics about the types of losses municipalities have been experiencing, even with the continued stream of revenue during the pandemic, our 2020 hotel tax revenue was down by over $90,000 with rental income and charges for services down by $475,000. For the first time in more than a decade, Mayfield Village and its neighboring communities were asked to subsidize the local Municipal Court in the amount of $294,000. Additionally, we provided $150,000 in emergency small business support that was unbudgeted. The list goes on and I am sure that you have heard of even greater losses from other communities.

I urge you to oppose the proposed amendment that would allow work-from-home employees to seek tax refunds retroactive to tax year 2020. Sincerely,

Mayor Brenda T. Bodnar BTB/dtw

June 3, 2021

The Honorable Matt Dolan State Senator / District 24 Senate Building, 1 Capitol Square Columbus, OH 43215 Via email to [email protected] Dear Senator Dolan, I was disappointed to learn that the Ohio Senate is proposing to amend Section 29 of H.B. 197 to modify municipal income tax employer withholding rules for COVID-19-related work-from-home employees to allow such employees to apply for tax refunds retroactive to January 1, 2020. As we discussed previously, retroactivity will substantially impact the public coffers of most cities in Ohio and will be nearly impossible to quantify. It will definitely be devastating to many cities, particularly larger cities, but in some cases smaller municipalities as well, like Mayfield Village. You know that local revenues are suffering across-the-board and, despite rhetoric about those losses being made up by federal assistance, this suffering is likely to continue for some time. This places additional continued uncertainty on projected Village revenues and overall, the municipal budgeting process. This is not the time to hit municipalities with any additional losses. Such additional losses are really two-fold. First employees working from home will invariably reduce our already flat and/or decreasing revenues and secondly, with the payment of unanticipated unbudgeted funding needed for the payment of refunds, we will need to cut other expenditures. I want to point out to you, and the Senators sponsoring this action, that passing this amendment will ultimately negatively impact those they most claim to support—local businesses and first responders. Impact on Local Businesses. Over the past decade, many cities have found themselves in a position to have to offer incentives to local businesses in order to keep them within their borders. Competition is fierce among cities and rather than poach from each other, we work fervently to keep our business base stable. More often than before, income tax rebates are offered to businesses that remain and grow. I suspect that our method for calculating these tax rebates is common among cities—it is based on reaching agreement on a minimum baseline of local income tax revenue. Only if the company reaches this baseline in a given year is the rebate paid. In Mayfield Village, our 2020 rebates have already been paid; this is surely true of other cities as well. If refunds retroactive to 2020 are provided to work-from-home employees, it is likely that companies will fall below the baseline and become ineligible for the rebate, forcing repayment of these funds. In other words, the Senate proposal would interfere with obligations under existing contracts entered into under and reliant upon then-existing law. Impact on First Responders. Again, I don’t believe that Mayfield Village is different from most other municipalities. On average, 75% of our expenditures are for employee payroll and benefits, more than half of which is devoted to safety forces. As I talk to other local Mayors, it is clear that we have all worked hard to get through the pandemic without laying

The Honorable Matt Dolan June 3, 2021 Page Two off employees, while at the same time maintaining services and continuing to honor our collective bargaining obligations. As we all know, when local revenues go down, first responders are the first employees to be reduced, making us all less safe. This legislation will effectively “defund the Police” (along with Fire, EMS and the other fundamental services we provide) and is an irresponsible effort to refund tax dollars at the expense of public safety. To give you some more specifics, even in the Village, our 2020 hotel tax revenue was down by over $90,000 with rental income and charges for services down by $475,000. For the first time in more than a decade, Mayfield Village and its neighboring communities were asked to subsidize the local Municipal Court in the amount of $294,000. Additionally, we provided $150,000 in emergency small business support that was unbudgeted. The list goes on and I am sure that you will hear of even greater losses from other communities. Finally, I can only imagine the administrative mess that trying to facilitate these refunds will be. As I understand it, there is no mechanism in place for refunds to be redirected to the resident’s home community if refunded from the host community unless both communities share the same collection agency like a RITA. At best, this is an unnecessary retroactive shifting of monies between municipalities and, at worst, it will be a loss to not only the host community but also the resident’s home community if the two communities are unable to coordinate the shifting of funds.

I urge you to vote against the proposed amendment that would allow work-from-home employees to seek tax refunds retroactive to January 1, 2020. I hope to have an opportunity to discuss this matter with you prior to the vote. Sincerely,

Brenda T. Bodnar Mayor BTB/dtw

April 19, 2021

The Honorable Phillip Robinson, Jr. State Representative / District 6 77 South High Street Columbus, OH 43215 Via email to [email protected]

The Honorable Matt Dolan State Senator / District 24 Senate Building, 1 Capitol Square Columbus, OH 43215 Via email to [email protected]

Dear Representative Robinson and Senator Dolan,

On behalf of Mayfield Village, I write to urge your opposition to Sub. HB 157. This legislation would change the original intent of Section 29 of HB 197, the temporary provision instructing municipalities to continue withholding municipal income tax at a taxpayer’s place of work, even if the taxpayer is currently working from home in a different local jurisdiction due to the COVID-19 pandemic.

While Mayfield Village supports the provision in Sub. HB 157 extending of the sunsetting of Sec. 29 of HB 197 until December 31, 2021, we strongly oppose the remaining provisions in the substitute bill that attempt to rewrite the original intent of the temporary withholding provision.

Section 29 of HB 197 was unambiguous in its intention to preserve the status quo regarding income tax withholding for municipalities and business. Municipalities across the state have made budgetary decisions that are dependent upon the revenue stability granted to them by Sec. 29 of HB 197. The passage of Sub. HB 157 could result in substantial refunds to employees working from home during the emergency which could be devastating to all municipalities, particularly larger Ohio cities, who were protected by the language in Sec. 29 of HB 197.

I ask that the legislature respect the original intent of Sec. 29 of HB 197 and urge you to oppose Sub. HB 157.

Respectfully,

Brenda T. Bodnar Mayor

BTB/dtw cc: Mayfield Village Council