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The city of Athens faces a shrinking tax base as more people work remotely

By: David Forster
Posted on: Wednesday, March 16, 2022

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ATHENS, Ohio (WOUB) — The city of Athens may have to make some budget cuts in the face of declining tax revenue as more people continue to work remotely.

The city has already coughed up an extra $100,000 to pay income tax refunds to remote workers. And at Monday’s City Council meeting, the city’s auditor said she needed $100,000 more.

This is all tied to the pandemic.

Under state law, local income taxes are withheld from an employee’s paycheck only if the person lives in or works in a community that has a tax.

If an Ohio University employee lives in Albany but comes to the Athens campus to work, for example, that person must pay the Athens income tax of 1.85 percent.

If that same university employee instead worked from home in Albany, they would not have to pay the tax. If they lived in Athens, however, they would.

When the onset of the pandemic two year ago sent so many people home to work, the state adopted an emergency measure that allowed employers to continue withholding local income taxes based on the location of the employer, not where the employee was actually working.

So, if that Albany resident had been working on campus but ended up working from home because of the pandemic, the university was still withholding Athens income taxes from their paychecks.

Employers continued doing this last year as the pandemic dragged on.

But included in the budget bill the Legislature passed in September was a provision allowing employees to seek a refund of local taxes paid in 2021 for any period they were not living or working in that community.

Local officials weren’t sure what to expect. How many people would actually go to the effort of applying for a refund?

“So what’s happened is a lot of people are filing. More than we might have imagined,” said Kathy Hecht, Athens city auditor.

Hecht hopes the extra $200,000 will be enough to cover all the refunds. But she won’t know for sure until mid-October, which is the final tax filing deadline for those who request extensions.

“We might be asking for more,” she said.

Meanwhile, these refunds are chewing a hole into the city’s general fund.

The state budget bill also ended the emergency measure, so starting this year employers are back to withholding local taxes only if employees live or work in the community. This means there won’t be so many refunds next year.

But there’s another problem. Lots of people are still working remotely and it’s looking like this might continue well after the pandemic subsides.

And this means less income tax for the city.

“Absolutely there will be revenue loss, there’s no doubt about it,” Hecht said.

Just two full months into the year income tax revenue is already down about $200,000 from the first two months of 2020, before the pandemic, she said.

Income taxes are the chief source of revenue for the city’s general fund, which pays for police and fire service, the courts, code enforcement and many other public services.

Trying to estimate how much less tax revenue the city will collect this year is difficult because the city doesn’t know how many people will work remotely, for how long and how much they earn.

Hecht expects hundreds of Ohio University employees will continue to work from home, and many of them live outside the city.

“People in administrative type jobs or desk jobs don’t have to be on campus or in the office building to do their job so much anymore,” she said, “so it’s not just OU where this is happening.”

And those with the flexibility to work from home are often higher-wage employees, Hecht said, which means more income tax loss since the amount collected is tied to earnings.

Hecht said she and other city leaders will need to sit down before too long and identify what cuts or other adjustments might need to be made as revenue declines.

“I have a feeling me asking for this additional money for refunds is going to kind of shake the council up a little bit,” she said. “And it should. We’re not going to go broke, but we are going to have to make changes.”