Working from home may cost GR $20M in lost taxes

Grand Rapids

GRAND RAPIDS, Mich. (WOOD) — They are not talking layoffs or major program cuts yet, but officials at Grand Rapids City Hall are warning about tough times ahead.

The challenge, according to the city’s chief financial officer, is predicting where shortfalls will happen.

“This recession is not behaving like any previous recession,” Grand Rapids CFO Molly Clarin said Tuesday. “The variables we typically hold on to make educated guesses about what’s going to go on with our revenue stream going forward, a lot of things are operating the opposite way we expect.”

So far, the gaps have been filled through budget reductions like a hiring freeze and putting some programs on hold. The city has also dipped into savings, something the officials want to avoid with the uncertainty in the future.

One of the greatest losses of revenue is the expected drop in income taxes. Grand Rapids is one of 22 cities in the state that collects an income tax. Because some people are working from home and not coming into the city, they may not have to pay it.

“We just don’t know the direct impact or the volatility from the telecommuting and just unemployment in general,” City Manager Mark Washington told city commissioners Tuesday.

The loss to the city could be as much as $20 million this fiscal year.

Some city commissioners expressed concern it may be a permanent problem.

“One of the biggest questions for me, or one of the biggest mysteries, is how the pandemic has changed the workplace and if we’ve looking at perhaps the new norm where you have more and more people working from home, how we can position ourselves to receive tax revenue?” 2nd Ward Commissioner Joe Jones wondered.

Clarin also weighed in on the expected impact of the loss in income tax revenue. 

“When you see a disruption to that revenue stream, you’re going to have to expect to have to accommodate toward what your expectations are going to be,” Clarin told News 8 Wednesday.

Without additional financial support from the federal or state government, Clarin said the loss in revenue will likely lead to the city to roll back on certain services.  

“It’s very dire,” she said. If it’s going to be as bad as $20 million … so we’re really trying to scrub down our budgets as much as we can to find that breaking point of where we’re going to impact city services.”

While it’s money lost for the city, certified public accountant Duane Culver said non-resident, remote employees are likely in for a tax break.

“The difference between working from home versus working inside the city of Grand Rapids, if you earned $20,000 during the year, at three-quarters of 1%, the tax on that would be $150,” Culver said. 

It would be $150 dollars the employee would save, but the city would lose. 

The city has asked the state Legislature to take action, but that hasn’t happened. Ohio changed state law to allow cities to collect income tax even if people work from home, but the new law is being challenged in the courts.

Grand Rapids officials are also hoping for more help from the state and federal governments. While the state has provided some relief and Kent County gave the city about $7 million that it received from the Care’s Act, there’s been no director relief from Washington this year. City officials say cities with populations under 500,000, including Grand Rapids, have not been eligible to receive any CARES Act funding.

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