Beachwood Income Taxes Rebounding From Recession

In 2010, the city was really feeling the effect of the Great Recession. City officials knew income tax revenue had taken a $1.5 million hit from the year before.

Empty city positions went largely unfilled, city officials tried to cut back on expenses and city employees and unions had wage freezes to start 2011.  

Still, something else had to be done.

Officials gave residents a choice: a reduction of services or a 0.5 percent increase in the income tax rate. Residents chose the latter, and income tax revenue grew nearly 39 percent in 2011.

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Finance director David Pfaff estimated the new 2 percent income tax rate would generate a $5.5 million to $6 million increase. Last year, the city’s income tax revenue was up about $6.7 million.

“There’s more than just the income tax increase in there, but trying to separate what was due to the income tax increase and what’s due to the recovery is sort of hard,” Pfaff said.  

Total income tax revenues for the past four years were

• $21.5 million in 2008
• $18.8 million in 2009
• $17.3 million in 2010
• $24 million in 2011

Through May, the city collected about $12 million. Income taxes account for 66 percent of the city’s general operating budget, projected at $36.5 million for 2012.

Beachwood took action so they could get their finances back on track, though Pfaff noted this is the first time in many years the city’s income tax revenue took a hit.

“The strong commercial base of the city is what really helps us when things downtick,” Pfaff said. “Actually, this most recent recession was the first time that the city really saw a decrease in income tax revenue.

“It’s that strong commercial base and a lot of times even in prior recessions, it really didn’t affect the city hardly at all. We rely on the workers of the city, not the residents of the city, to basically pay for the majority of the taxes that support the operations.”

Beachwood has just under 12,000 residents, but there’s estimates of 100,000 employees coming to the city every day to work, go shopping or grab a meal who have helped the city’s finances remain strong over the years.

But this recession was larger and longer than in years past, and Beachwood saw some businesses leave, including a National Bank office that closed after PNC Bank bought it.

“There were three or four other ones that weren’t our largest employers, but they were probably in our top 25 withholders that they either shut down or moved out of the city,” Pfaff said. “That would probably be the biggest difference between this time when the economy went bad and the last time. Other times when the economy went bad we really didn’t lose any employers.”

The recession also forced city officials to approach economic development differently. For the past 10 years, the city had been working with the Beachwood Chamber of Commerce on economic development. In 2011, the city hired a consulting firm to study Beachwood’s economic development.

Among their recommendations was to hire an economic development director and create an economic development department internal to the city, creating economic development incentive programs and revamping the city’s website. James Doutt started in April, and the city is moving ahead with those and other recommendations.

“That doesn't mean we can’t do more,” Doutt said. “That doesn't mean we can’t be more successful and attract other companies to Beachwood and create really good jobs and help the tax base of Beachwood even more. That’s an aggressive approach to economic development, and that’s exactly what’s needed. We’re not satisfied with the status quo. We want to get even better.”

Before voters went to the ballot in 2010, Pfaff said it had been roughly 20 years since the city increased the income tax rate. An increase was something he said city officials were going to do eventually and the recession just moved up the timeline.

“I mean, it was at the point where probably if you went back about five years ago and really wanted to look out into the future, you probably could have said you know what in seven or eight years, the city might have to start looking at an income tax increase based on the growth of the city and the cost. Then when all of a sudden that recession hit, that seven or eight years now became three or four years.”

That additional revenue will not go as far the next couple years because the city will be losing $2.5 million to $3 million a year from state budget cuts.

In the next couple years, the city will also benefit from Eaton Corporation moving into Chagrin Highlands office park, which could see an increase in tenants following Eaton. Plus, there’s the possibility of expansion at University Hospitals Ahuja Medical Center.

“When you look at if from that, we’re going to take the hit for maybe the first year or two but the income tax increase is definitely going to get us through at least the next seven or eight years,” Pfaff said. “By that time, hopefully those other things have picked up so that the loss of revenue won’t even affect us.

“I think right now we are in excellent shape and while we’re going to feel the effects of losing some of that money from the state, I think at least for the next several years, we’re going to stay in excellent shape and hopefully with the additional commercial growth and projects in Chagrin Highlands that we’re going to be in excellent shape.”

Editor’s Note: In this series, Patch gauges the recovery of 18 Ohio communities based on income tax receipts since the Great Recession. Read about