CINCINNATI - The city's $19 million budget surplus comes with a catch -- a $6.25 million bill.
Cincinnati City Manger Harry Black announced last week the city has an extra $19 million left over from last year’s budget. But nearly one-third of that surplus actually belongs to Glendale, a city of 2,200 in Hamilton County.
Now Cincinnati must pay back that $6.25 million -- and it will cost taxpayers an extra $240,000 in interest over the next three years.
"It would seem to be in their best interest to return the money now, but it’s up to them," Hamilton County Auditor Dusty Rhodes said.
$6.25 Million Mistake
After lifelong Glendale resident Thomas Carruthers IV died in 2012, the Hamilton County auditor's office misdirected a $6.25 million estate tax payment to Cincinnati.
The costly error was thanks to incomplete paperwork filed by the attorney on the case, Rhodes said.
Glendale leaders started knocking on Hamilton County Auditor Dusty Rhodes’ door this spring. Leaders there had good reason to track down the money; the city’s yearly budget is $2.2 million. The tax from Carruthers’ estate amounts to almost three years worth of funding for the small city.
Glendale finally got its money this summer – three years later.
The problem ended there for Glendale but not for Cincinnati. The county, not the city, paid Glendale back the $6.25 million in June.
So the city is still on the hook for that money. Now Cincinnati has to pay all of that money back, with interest, to Hamilton County taxpayers.
Was Rhodes surprised the city decided to take the pay back plan – which will cost taxpayers more in the long run -- instead of paying it all back with some of that $19 million surplus?
“The ball is in their court,” he said with a shrug.
Taxes have mistakenly gone to other cities in the past – but few mistakes have been of this magnitude, Rhodes said. He offered Cincinnati leaders the same deal – essentially a loan – he’s given other municipalities in similar situations.
The city will begin paying back the $6.25 million, with 2 percent interest, in July, according to a deal that was inked in August. The money is scheduled to be paid back in full by 2018.
Councilman Kevin Flynn raised concerns about repaying the county during a budget and finance committee meeting Monday. He suggested the city set aside a portion of its $19 million budget surplus to brace for the upcoming payments. The motion, however, failed to garner support Monday.
Yes, the city will end up paying more in the long run, said Christopher Bigham, the city's budget director.
But keeping the millions for now allowed the city to spend money public safety projects, like upgrading technology in police cruisers. The city is also trying to save more money – a move that impacts Cincinnati’s credit rating – and paying back the money all at once could have jeopardized that effort.
“It helped us meet some of the immediate, specific needs,” Bigham said. He said the repayment was the biggest the city’s ever had to make on a tax mistake.
Nothing Near It
The state repealed the estate tax in 2013.
The tax might be dead but it’s still a headache for Rhodes, who said he’s learned from the error. His office is in the process of reviewing all of the estate tax payments made in the last five years.
The office has found some more mistakes with the estate tax payments, mostly stemming from attorneys who misfiled paperwork. Adjustments will have to be made in the coming months, he said, although none of them will be as hefty as the $6.25 million one.
“Nothing even near it,” Rhodes said.