Covington general fund budget shortfall due to dwindling payroll tax collections, city says

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The City of Covington’s general fund expenditures have exceeded its revenue, according to a recent quarterly financial report presented to the city commission on Tuesday. The deficit applies only to the city’s general fund. Other earmarked funds do not show similar splits in revenue and expenditure.

According to statements from the city’s finance director, Steve Webb, and a press release on the subject released on Thursday, the city is attributing its budget shortfall to dwindling payroll tax collections from local employers.

A snapshot of the city’s general fund. Data and chart: provided | The City of Covington

“Covington leaders are faced with filling significant holes in the City’s General Fund budget caused by decreases in payroll tax revenue as major employers in Covington are permitting employees to work from home and thus – if they live outside Covington – to pay their local taxes elsewhere,” the press release reads.

The release states that the city has “an anticipated hole of $5 million to be filled by June 30. As City leaders put together the budget for the 2024 fiscal year, which starts July 1, they anticipate a $7.2 million hole.”

The city attributes the shortfall to changes in labor practices, specifically work-from-home policies, which have become more common since the outbreak of the COVID-19 pandemic.

“We fall off the pace due to the implications of remote work situation with our largest employers,” said Webb on Tuesday. “As remote work has become normalized, these employers are now withholding and remitting portions of the occupational license tax to the jurisdictions where their employees are physically working.”

In other words, if someone is employed at a company located in Covington but works out of the region, the taxes collected on that person’s pay will go to the area where they are actually completing the work.

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Payroll tax is an outsized portion of the city’s revenue.

A breakdown of revenue sources for The City of Covington’s 2023 fiscal year. Data and chart: provided. | The City of Covington

“We have intentionally structured our finances to have reserves for the unexpected,” Mayor Joe Meyer said in the city press release. “This approach also enables us to avoid a crisis reaction, like layoffs. In the short term, the City can deal with this turn of events, but in the future we will have to rethink our strategies.”

LINK nky will report more on this issue as more information becomes available.

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