OML UPDATE AT-A-GLANCE
Here are the top three things you need to know from this past week:
- This morning, the Ohio Supreme Court heard oral arguments virtually on the lawsuit challenging the centralized collection of municipal net profit income taxes and provisions in HB 5, the Municipal Income Tax Uniformity bill passed in 2014. You can read more in the article below.
- The Ohio House and Senate were busy this week with committee hearings and sessions, holding hearings on several bills impacting municipalities, which you can read about in the committee recap below. The House will recess for the summer on June 11; the Senate is currently scheduled to recess on June 24. The legislature will not reconvene for lame duck in the fall until after the November election unless one or two session days are needed during summer recess. We will keep our members updated on any changes to the schedule.
- House Speaker Nancy Pelosi has introduced the Heroes Act (HR 6800), which would enact measures such as increasing aid for state and local governments, extending unemployment insurance benefits and providing more direct payments to citizens. The bill creates a local relief fund of $375 billion to assist local governments. You can read more in the article below.
SPONSOR TESTIMONY HEARD FOR LEGISLATION TO DISTRIBUTE FEDERAL AID TO LOCAL GOVERNMENTS
Today the House Finance Committee heard sponsor testimony on SB 310, sponsored by Sen. Dolan (R - Chagrin Falls), which would distribute $350 million from the CARES Act through the Local Government Fund (LGF) formula. Here you can find the bill language and analysis.
Sen. Dolan emphasized the urgent needs local governments are facing and the need to get these federal funds out quickly. "We believe this is an integral part of reopening our economy," he said.
The Senator explained in his testimony the money would be disbursed in a separate fund using the existing LGF formula with some modifications, including the exclusion of the five counties and one municipality in Ohio with populations over 500,000 that received direct distributions from the CARES Act.
He also explained that local governments would have to pass a resolution and send it to the political subdivision's county auditor and Ohio Office of Budget and Management (OBM) stating they will follow the guidelines established by the U.S. Dept. of Treasury on how the federal aid can be spent. OBM will be releasing a template that local governments can use for this resolution, and Sen. Dolan confirmed in his testimony that this language is coming soon.
Ohio received $4.5 billion from the CARES Act, up to $2 billion of which can be distributed to local governments. The $350 million disbursed by the bill leaves up to $850 million for distribution to Ohio's political subdivisions. According to the bill, the remaining funds would be held in reserve by the state for a second round of funding. In his testimony, Sen. Dolan said he believed the second round of funding should be held until there is further guidance from the federal government on how those funds can be used.
The League has joined with the Ohio Mayors Alliance, the County Commissioners Association of Ohio and the Ohio Township Association in support of SB 310. This coalition submitted joint proponent testimony when the bill was in the Senate, which you can read HERE.
We encourage our members to call their members in the Ohio House and urge them to support and quickly pass this legislation. Our cities and villages need federal aid immediately in order to continue delivering the quality services Ohioans deserve. It is imperative that the House act quickly on SB 310. We will continue to keep our members apprised of this bill as it moves through the legislative process.
ORAL ARGUMENTS HEARD BY OHIO SUPREME COURT ON MUNICIPAL INCOME TAX CENTRALIZED COLLECTION LAWSUIT
The Ohio Supreme Court heard oral arguments virtually this morning on the lawsuit challenging the constitutionality of the centralized collection of municipal net profit income taxes as well as provisions in HB 5, the 2014 Municipal Income Tax Uniformity bill.
The three-year history of this lawsuit began when the challenge was filed in November of 2017 by approximately 200 municipalities. The lawsuit challenged the constitutionality of provisions HB 49, which mandates that businesses be able to centrally file their net profit income taxes through the state via the Ohio Business Gateway (OBG) with the state then distributing the money to the municipalities after removing a .5% administrative fee. The lawsuit also challenged the constitutionality of provisions in HB 5, the 2014 Municipal Income Tax Uniformity bill, which mandated that municipalities conform their municipal tax laws with state law to continue to collect income taxes.
After the two initial lawsuits filed by the municipalities were combined into Franklin County, the Franklin County Common Pleas Court and the Tenth District Court of Appeals ruled in favor of the state. Our members appealed the ruling to the Ohio Supreme Court. The appeal was filed in May of last year and was accepted 5-2 that August. The League filed an amicus brief with the Ohio Supreme Court in support of our members.
It is the League's position along with our members that the Supreme Court ruling in Cincinnati Bell v. Cincinnati (1998) stated that taxation falls under the Ohio Constitution's Home Rule provision protecting "all powers of local self-government." Our members have also argued that centralized collection does not give municipalities the right to audit the taxpayers that file their net profits through the OBG, as well as denying them the ability to review those tax records, make decisions regarding alternative apportionment, enforce filings or participate in appeals filed by a taxpayer.
Court documents filed by our members state that, "The home rule power of local self-government is ultimately hollow if municipalities cannot control the collection and administration of their primary remaining revenue source, the municipal income tax."
Ohio Attorney General Dave Yost, on behalf of the state, has argued that the Ohio Constitution allows the state to both limit and restrict municipal levies, including "the mode and measure of the restriction to be imposed." He argued that the ruling in Maloy v. City of Marietta (1860) encompasses the state's authority over both tax rates and all forms of tax administration.
During today's oral arguments, the state repeated these arguments and stated that the cost of compliance for businesses to file net profits in multiple municipalities makes centralized collection necessary. The Supreme Court Justices questioned why the state felt they could levy the .5% administration fee and whether the amount could be raised to any percentage the state deemed necessary. Counsel representing our members made a strong case that the ability of a municipality to levy and collect municipal income tax is protected by Home Rule. They also argued that state's claim that it costs Ohio businesses $800 million each year to comply with filing net profit taxes in multiple municipalities is baseless.
A decision from the court is expected within the next three to five months and at most, before the end of the year. The League will continue to keep our members updated on the lawsuit as the court hearings proceed.
PHASE FOUR FEDERAL FUNDING BILL INTRODUCED
House Speaker Nancy Pelosi has introduced the Heroes Act (HR 6800), which would allocate phase four of federal aid in response to the COVID-19 pandemic." You can read the bill language and the full summary HERE.
Most notably for Ohio's municipalities, the bill creates a local relief fund of $375 billion to assist local governments. This money would be more flexible than the funds currently provided by the CARES Act and could be used to help stabilize local budgets.
The bill contains many other allocations that would impact local governments, including $15 billion in Community Development Block Grants, $5.5 billion for broadband and $1 billion to Community Development Financial Institutions (CDFI) for economic support and recovery in distressed communities. Additionally, the bill removes the exclusion disallowing the paid sick and family leave credits enacted in the Families First Coronavirus Response Act for local governments.
The bill provides federal funding to a wide range of areas, including agriculture, rural development, education and transportation. It would allocate funding for family care for essential workers, extend unemployment insurance benefits and send more direct payments to Americans. Other allocations in the bill include $500 billion for state governments to assist with the fiscal impacts from the public and $10 billion for grants to small businesses.
The League supports a much-needed phase four in federal funding for Ohio's cities and villages. Our members are encouraged to contact their members of Congress and ask that they support this bill in order to provide financial aid that can help stabilize Ohio's local budgets.
UPDATE ON OHIO CORONAVIRUS RESPONSE
- As of Wednesday afternoon, Ohio is reporting 25,721 cases of coronavirus, 1,483 deaths, 4,618 hospitalizations and 1,248 ICU admissions.
- Sectors licensed by the State Medical Board of Ohio, including massage therapy, acupuncture and cosmetic therapy will be permitted to reopen on May 15 with the implementation of proper safety measures. You can find the full list of mandatory and recommended best practices HERE.
- The Ohio Department of Job and Family Services (ODJFS) has received approval from the United States Department of Agriculture for its Pandemic EBT plan. The approval will allow ODJFS to distribute SNAP benefits to 850,000 students across Ohio who relied on free or reduced-price meal programs when school was in session to have access to a hot, nutritious meal. Families will receive approximately $300 to purchase healthy and nutritious foods to feed their children. These benefits amount to more than $250 million that will go to our grocery stores and other eligible retailers.
- Ohio Dept. of Aging Dir. Ursel McElroy announced the Stay Connected program which will provide a daily check-in by phone for Ohioans ages 60 or older. Eligible Ohioans can sign up at aging.ohio.gov or by calling 1-800-266-4346.
- The Ohio Department of Job and Family Services reported the following unemployment claims processing numbers: 1,067,500 filed in total; 89.4% resolved (either approved, denied or withdrawn); and 10.5% pending.
- The Small Business Administrating (SBA) is announcing that 126,159 small businesses in Ohio have been lent a total of $19 billion through the federal Payroll Protection Program. The loans will be forgiven if employees are kept employed for eight weeks and the money is only used for payroll, rent or mortgage interest, and utilities.
- JobsOhio and the Ohio Department of Commerce's Division of Liquor Control announced they will offer a one-time rebate to bars and restaurants to defray the cost of restocking high-proof spirituous liquor. Beginning in mid-May, JobsOhio will provide a $500 rebate in high-proof spirituous liquor to eligible permits for purchases made through Ohio Liquor Contract Liquor Agencies. Permit holders must register to be eligible for rebate. There are more than 13,600 eligible permits in Ohio, totaling $6.8 million in potential rebates available to bars and restaurants. To view qualifying permits and to register for the liquor rebate program, visit Wholesale.OHLQ.com.
COMMITTEE RECAP: BILLS OF MUNICIPAL INTEREST
Here are the bills impacting municipalities that have received committee hearings so far this week:
- HB 308 - PTSD COVERAGE. Sponsored by Rep. Patton (R - Strongville), concerns workers' compensation and disability retirement for peace officers, firefighters, and emergency medical workers diagnosed with post-traumatic stress disorder arising from employment without an accompanying physical injury. During its first hearing before the Senate General Government and Agency Review Committee, the bill's sponsor explained that the bill would make a first responder diagnosed with post-traumatic stress disorder arising from employment eligible for workers' compensation and benefits without the current requirement for an accompanying physical injury. The League was supportive of a one-year cap on coverage; however, the bill was amended to remove that cap when the bill was in the House. The League is now opposed to this legislation.(Link: https://bit.ly/2Z3MlOz)
- HB 242 - AUXILIARY CONTAINERS. Sponsored by Rep. Lang (R - West Chester Tsp.) and Rep. Jones (R - Freeport), would authorize the use of an auxiliary container for any purpose, prohibit the imposition of a tax or fee on those containers, and apply existing anti-littering law to those containers. During its first hearing before the Senate Local Government, Public Safety and Veterans Affairs Committee, the bill's sponsors claimed the legislation is intended to "better ensure a healthy economy in Ohio". The League is opposed to this legislation. (Link: https://bit.ly/2yI9cEN)
- HB 163 - WATER/SEWER SERVICE. Sponsored by Rep. Brinkman (R - Cincinnati), would create a process for withholding local government funds and state water and sewer assistance from municipal corporations that engage in certain water and sewer practices with respect to extraterritorial service. During its seventh hearing before the House Public Utilities Committee, the bill was voted out of committee. The League is opposed to this legislation.(Link: https://bit.ly/2Wr7q3G)
- SB 10 - THEFT IN OFFICE. Sponsored by Sen. Wilson (R - Maineville), would expand the penalties for theft in office based on the amount stolen and to include as restitution audit costs of the entity that suffered the loss. During its fourth hearing before the House Criminal Justice Committee, four amendments to the bill were adopted. The first adds to the list of debts toward the satisfaction of which the Tax Commissioner may apply a tax refund due to a taxpayer; the second requires county auditor to issue warrants for payment of county obligations in certain instances; the third amends the criminal conviction records sealing law; and the fourth caps the reimbursement amount for an audit. The League is supportive of this legislation. (Link: https://bit.ly/3dGlQCT)