Ohio study: Remote work could hurt city budgets by weakening tax revenue

COLUMBUS, Ohio (WCMH) — The consequences of working from home during the COVID-19 pandemic are well documented, but a new study of some major Ohio cities lays out the possible lasting impact of remote work on the money cities bring in and spend on residents.

The study was conducted by Florida-based financial consultant PFM for the Ohio Mayors Alliance, a bipartisan coalition of mayors in some of Ohio’s largest cities and suburbs.

Using a sample of 10 cities (including Columbus) that rely heavily on municipal income taxes to balance their budget, researchers quantified how city budgets could be hurt by employees moving to remote work, staying in pandemic-caused remote work or businesses keeping hybrid models where workers are in the office some days and at home other days.

Ohio cities tax both their residents and the people who work in the city but don’t live there. If you live in Pataskala, for example, but commute every day to a job in Columbus, you’re also paying Columbus taxes. But if you’re now working from home in Pataskala every day, you’re technically a Pataskala-based worker, not a Columbus-based one.

The study lays out three scenarios — high, medium and low impact — that show by how much each city’s general fund could shrink.

In Columbus, the high-impact scenario shows a 12% loss of general fund revenue, equal to $110.3 million, as work-from-home shifts could impact as much as 39% of the workforce.

Medium- and low-impact scenarios in the capital city predict drops of $62.9 million (7%) and $40.2 million (4%).

City High-impact scenario Medium-impact scenario Low-impact scenario
Akron -7% -4% -3%
Cincinnati -12% -7% -5%
Columbus -12% -7% -4%
Dayton -17% -10% -6%
Elyria -14% -9% -6%
Fairfield -15% -9% -6%
Kettering -12% -7% -5%
Springfield -10% -6% -4%
Strongsville -6% -4% -3%
Toledo -6% -3% -2%

“Ohio’s economy is only as strong as the health and vibrancy of our cities and local communities,” Ohio Mayors Alliance executive director Keary McCarthy said in a release. “Working from home isn’t a bad thing, but it does have unintended consequences that will affect cities, downtown businesses, and local economic development strategies.”

Potential impacts, the study notes, also depend on factors like how much each city’s budget relies on income taxes and the number of workers who commute into city limits from surrounding suburbs. In 2019, Columbus used income taxes to pay for 75.9% of its budget of more than $711 million.

The report also claims its estimates are “very conservative,” since it solely focuses on income tax revenue lost from residents and nonresidents. It does not address lost tax revenue from businesses; the effects of less spending on goods and services downtown; or an increase in office space vacancies and decreasing property values.

“As this report confirms, remote working will have lasting impacts on local communities,” McCarthy said. “While we are not currently seeking a state legislative solution, we do intend to work with state leaders to closely monitor these trends and the fiscal impacts on our cities.”

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