Background
The City of Columbus has a proud legacy of strong fiscal stewardship. The long-standing practices of setting aside 25% of the city’s income tax proceeds for debt service and the limiting use of a coverage ratio are hallmarks of sound financial management, and the city’s credit rating reflects the belief by those ratings agencies that our fiscal conservatism will keep the city stable and secure.
However, since the code revision that created the Income Tax Set Aside fund (ITSA) was enacted in 2019, the city has seen an increasing reliance on the use of these funds for ongoing operating expenses. Rather than dedicating 25 cents of every dollar to debt service and capital planning, that amount has continued to decline as direct expenses out of ITSA consume an increasing share of the revenue.
This practice has two severe downstream impacts. First, it potentially places the city’s credit rating at risk. The use of what is considered a reserve fund for ongoing operational expenses is inconsistent with generally-accepted accounting standards; rather, annual operational expenses should be supported by more appropriate funding sources. Second, the use of cash within ITSA for direct expense, rather than on debt service, inhibits the city’s ability to more effectively manage its capital portfolio. Utilizing cash from the Income Tax Set Aside fund mitigates the city’s ability to more aggressively pay down outstanding debt or to service additional debt through the capital portfolio.
To that end, this code change will effectively establish a ceiling for direct expense out of ITSA, the purpose of which is to steadily and consistently reduce what Council deems to be an inappropriate use of these funds.
Fiscal Impact: None.
Title
To amend Chapter 362 of Columbus City Codes on the use of the Income Tax Set Aside subfund. ($0.00)
Body
WHEREAS, the long-standing practices of setting aside 25% of the city’s income tax proceeds for debt service and the limiting use of a coverage ratio are hallmarks of sound financial management; and
WHEREAS, however, since the code revision that created the Income Tax Set Aside fund (ITSA) was enacted in 2019, the city has seen an increasing reliance on the use of these funds for ongoing operating expenses; and
WHEREAS, this practice is inconsistent with financial best practices in that it utilizes reserve funds for annual expenses and limits the city’s capital capacity; now, therefore,
BE IT ORDAINED BY THE COUNCIL OF THE CITY OF COLUMBUS:
SECTION 1. That Section 362.013 of Columbus City Codes is hereby amended as follows:
362.013 ALLOCATION OF FUNDS
The funds collected under the provisions of this chapter shall be allocated for the following purposes and in the following order:
(A) Such part thereof as shall be necessary to defray all costs of collecting the taxes levied by Chapter 362, Columbus City Codes, and enforcing the provisions thereof;
(B) Such part thereof as council may appropriate to the general fund for the purpose of paying the cost of general municipal operations;
(C) Such part thereof as council may appropriate for the purpose of paying the cost of maintenance of, and the purchase of new equipment, motorized or other;
(D) Such part thereof as council may appropriate for the purpose of paying the cost of the repair and maintenance of streets;
(E) In any event, for each fiscal year, at least twenty-five (25) percent of all monies collected under Chapter 362 shall be deposited into a subfund of the general fund to be distributed for the following purposes and in the following order:
(1) For transfer to the city's debt retirement fund, amount(s) sufficient, taking into account the current balance in the debt retirement fund, to provide for the payment of principal and interest due during the current fiscal year on bonds and notes issued by the city and other debt obligations of the city which are to be paid from the debt retirement fund and not from another source of funds, and to provide for the payment of costs of debt issuance. Interest and principal due on bonds and notes issued in excess of the one (1) percent limitations as authorized by Article XII, Section 2, of the Constitution of the state of Ohio, shall be first paid from said debt retirement fund before any payment may be made on interest or principal due on other notes or bonds. Notwithstanding anything in this division 362.013(E) to the contrary and pursuant to authority specifically conferred upon the City Auditor by council through approved debt ordinances, the City Auditor may pay any city arbitrage rebate obligations to the United States Department of the Treasury from the subfund at any time.
(2) Following the continuing satisfaction of (E)(1), at the request of the Director of the Department of Finance and Management, and by council appropriation, for current fiscal year expenditures and advances, excluding personnel costs. Qualifying expenses include the following:
(a) Costs associated with arbitrage remittances, including any legal or consultancy costs;
(b) Lease payments;
(c) The portion of income tax rebate associated with any economic development incentive or agreement;
(d) Income tax payments to school districts as a function of compensation agreements;
(e) Retirement of or additional payments against outstanding debt;
(f) Any other non-personnel expense.
(3) It shall be the responsibility of the City Auditor to determine the classification of expenses defined in subsection (2) of this section. The City Auditor shall categorize expenses incurred within the subfund since January 1, 2026.
(3) After January 1, 2027, those expenses categorized under 362.013(2)(f) cannot exceed ninety (90) percent of the total expenses similarly categorized in the prior fiscal year during the current fiscal year.
(3) (4) At the end of each fiscal year, for transfer to the city's debt retirement fund, such unencumbered cash as shall remain in the subfund following transfers or advances, encumbrances, and expenditures made pursuant to divisions (E)(1) and (2) of this section.
(F) The balance of funds deposited into the special fund authorized by former section 362.013(E) prior to January 1, 2024 shall be used solely for the payment of interest and principal on bonds and notes issued by the city until such funds are exhausted. Interest and principal due on bonds and notes issued in excess of the one (1) percent limitations as authorized by Article XII, Section 2, of the Constitution of the state of Ohio, shall be first paid from said special fund before any payment may be made on interest or principal due on other notes or bonds.
SECTION 2. That current Section 362.013 is hereby repealed in its entirety.
SECTION 3. That this ordinance shall take effect at the earliest date allowable by law.