On Taxes, Utility Rates and Economic Development

I’ve been researching local taxes and utility rates in Ohio over the past few weeks (to date 57 counties). It is interesting to note that the adage that rural areas are less expensive in terms of taxation and utility costs, may not be quite the case in Ohio anymore; in fact the notion may have flown out the window when school boards were enabled to enact income taxes — or at least, the gap is narrowing.  To be clear, the commentary below is based on observation – I have not performed a detailed analysis; however, I am rather confident that the comments below will prove accurate if such an analysis were performed.  And the data is from reviewing communities of 1500 and over in approximately 57 of Ohio’s 88 counties.

Further, those former rural areas that have now become first ring suburbs in northwest Ohio or second ring suburbs to the west and south of Cuyahoga County are now on par with established suburbs. The interesting factor that is beginning to balance the equation or the urban/suburban vs. rural cost differential is the law enabling school districts to levy an income tax. In some cases, the additional school income tax rates have placed the combined (municipal and school) income tax rates in these rural cities and villages (mostly villages) at or over 2% (comparable with urban and suburban rates), with a number of them with rates exceeding 3% — far above the norm for first ring suburbs and established suburban areas.

Interestingly,  property tax rates in the rural central and (especially) western Ohio, appear to be 20-30 mills less than the traditional urban/suburban rings property tax rate.  It almost appears that the rural communities have been rather supportive of using the income tax as a tool primarily aimed at employers than residents; as opposed to the property tax which would take a heavy toll on growing senior citizen populations.  This of course, may have its own implications for economic growth and attraction in and to these communities.

Another area of interest is the water and sanitary sewer utility rates.  Again, when reviewing rates (not a simple task in this state), the water rates are surprisingly cheaper than the urban/suburban rates.  This is a little tough to quantify as the methodology for establishing rates seem as numerous as there are water utilities. It is a rather bizarre situation. Indeed, there could be a simple and standardized way to do this – however it is one of those situations where council members, water and sanitary sewer operators and engineers fall back to the position of, “Well, that’s the way we’ve always done it” without thinking about the implications for business attraction.  This is an area that needs some reform and standardization – if for no other reason than to simplify the process for businesses to make comparisons when considering a relocation or an expansion.  Fortunately, for businesses making relocation and expansion decisions, our BARC tool can even that playing field and really provide an opportunity for rural communities to state their economic case.

There are a number of discussions that can come out of this commentary: school funding reform; local government reform and information standardization/transparency; suburban and exurban sprawl and green growth; urban revitalization; economic development funding; statewide infrastructure funding; and the list can go on.  Ohio does need to take a serious look at this issue of education funding once and for all. It may very well be time for a state-wide task force of municipal and local school district professionals to take a stab at it as the history of governors and legislatures trying to resolve the issue have failed miserably.

It may be time for municipalities to not only think more along regional and maybe bio-regional alignments, but to also become more transparent and upfront in making tax and utility information more accessible, instead of hiding it.  We know that location decision are more than local taxes and utility costs; there are cultural and perceived notions of educational quality.  However,  as was stated in the previous blog, more companies are looking at rural areas.  And this needs to be a wake up call for all communities.  Just in observing community websites, it is obvious that very few rural communities understand economic development and probably would not know what to do if the became the host to a new company or a slew of small businesses.

More than anything, the rural communities in Ohio need to crane their necks to the horizon and see what is there; what their real potential is and either embrace it or whole-heartedly, step aside, and indicate they do not welcome economic development.  Further, the rural communities need to increase the professionalism of their operations and their presentation. – including changing from a mayor-council-adminstrator system to a council manager system; or at least hiring professionally trained and educated administrators (MPAs, etc).  Change is tough, no matter what the scale, the community tradition (and control issues – let’s be honest here), or the level of required investment.  It is also a wake up call for the “more expensive” urban/suburban communities to really analyze their operations and determine where they can work smarter, utilizing technology to reduce their overhead, while maintaining their hard-earned zip code appeal.


About Economic Development Data Services, Inc.

EDDS is a company focused on providing effective, efficient solutions for local governments in the areas of community and economic development and strategic planning. We offer the BARC - Business Assistance Recruitment Calculator - tool and website solutions in developing economic development websites. Our new website is www.econdevdataservices.com
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One Response to On Taxes, Utility Rates and Economic Development

  1. It was pointed out to me that only employed residents of a school district pay the income tax, which of course reaches into township areas (for those whose school district also encompasses townships). Thank you Mark Cozy for pointing that out. This may well have a locational impact for businesses locating an operation, due to higher costs for their employees, many of whom in a rural area may choose to a shorter commute to work. In looking at the community tax structures however, the resident’s cost may be offset by a combination of lower property taxes AND utilities in a rural area. The local school district income tax does not impact the business and with the other tax and utility cost, the locational cost in a rural area will still be advantageous.

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