By Larry Jones
April 21, 2008

If all goes well, a controversial bill that could cause local governments to lose a significant amount in income tax revenues will be rewritten so it will not apply to them. Although the Mobile Workforce State Income Tax Fairness and Simplification Act (H.R. 3359) would preempt the ability of state and local governments to tax the income of out-of'state-workers who perform duties within their borders for 60 days or less, representatives of local governments were told that the bill was never intended to apply to local governments.

The news came during an April 9 meeting arranged by The U.S. Conference of Mayors with the bill’s sponsor, Representative Hank Johnson (GA). Other organizations joining the Conference at the meeting were the National League of Cities, the National Association of Counties, the cities of St. Louis and Dearborn, and New York state.

During the meeting, local representatives explained that in some cities non-resident income taxes make up a significant portion of total revenues at the local level. If the legislation as written becomes law, the loss of revenues would force many local leaders to make some very unpopular choices. They would either cut back on critical public services (such as education, police protection, and fire and rescue services) or raise other taxes at a time when residents are facing record-high energy prices and mounting housing foreclosures.

To demonstrate the financial impact of the bill in terms of estimated dollar amounts in annual revenue losses, local representatives collected information from several cities: St. Louis, $43 million; Columbus, Ohio $60 million; Cincinnati, $34 million; Cleveland, $47 million; Toledo, $23 million; Grand Rapids, $1 million. And while it is unclear how many non-resident workers in Detroit work for 60 days or less, the total amount collected from such workers is $83 million; and 22 other Michigan cities would suffer an estimated annual loss of $123 million. Also, it is unclear how many non-resident workers in Philadelphia work for 60 days or less, however, the city collects $585 million in total revenues from wage and net profit taxes from non-resident workers. Further, New York state estimates it will lose $150 million to $200 million.

During the meeting, Johnson listened carefully to local representatives and pointed out that as a former county commissioner in DeKalb County, he understood their concerns. To everyone’s surprise he said he never intended for the bill to apply to local governments. Alexandrine De Bianchi, a senior legislative assistant to Johnson said she would take responsibility for rewriting the bill and dropping local governments from its application. She also explained that the bill was never intended to apply to non-resident workers who live in one state and commute on a daily basis to a regular fulltime job in a different state. Local representative explained that the bill made no distinction between temporary or fulltime workers and as currently written, it seems to have broad application. Alexandrine said this would be clarified when the bill is rewritten.

In a related meeting, Grand Rapids (MI) Mayor George Heartwell met with Perry Apelbaum, chief of staff of the House Judiciary Committee, to discuss the impact of the bill on his city. Judiciary is the full panel with jurisdiction over H.R. 3359, which is chaired by Rep. John Conyers (MI). Johnson serves on Judiciary’s Commercial and Administrative Law Subcommittee, which is the lower panel responsible for the bill. If the bill passes at the subcommittee it will have to win the approval of the full panel. While local governments in Georgia do not collect income taxes and therefore will not be impacted by the bill, most local governments in Michigan do collect income taxes and would be impacted.

Heartwell told Apelbaum the bill would hurt Grand Rapids and local governments in Michigan and other states. And, he explained, even if local governments are dropped from the bill it could still hurt them if it causes states to lose a huge amount in revenues. The reason is because local governments receive a large amount of revenues from their states. Apelbaum told the mayor he would monitor movement on the bill very closely and make sure he and other local leaders are notified before any action is taken.