Columbus City Council Moves to Cap Operational Spending From Income Tax Reserve
The legislation would limit operational withdrawals to 90 percent of prior-year levels to safeguard credit ratings and capital borrowing capacity.
Columbus City Council is advancing legislation to establish a statutory ceiling on operational spending from the municipal Income Tax Set Aside subfund.
The proposed city code change would establish a ceiling for direct expense out of the Income Tax Set Aside subfund. According to the legislation's background analysis, using reserve funds for ongoing operational expenses is inconsistent with generally-accepted accounting standards and potentially places the city's credit rating at risk. The analysis warns that using reserve cash for direct operational expenses inhibits the city's ability to manage its capital portfolio and pay down outstanding municipal debt.
Postponement and Council Timeline
Council President Shannon Hardin moved on Oct. 26 to postpone the legislation to Nov. 2 with an amendment request submitted to the City Clerk, a motion that carried on a floor vote. Under council's calendar, lawmakers are scheduled to take up the amended legislation for a second reading and a floor vote on Monday, Nov. 2.
According to city legislative records, the measure is designated for second reading. Hardin previously introduced legislation to amend Chapter 362 on the use of the income tax reserve on Oct. 19.
Credit Rating Stakes and Capital Constraints
The push for statutory spending restrictions follows growing concern over how the city allocates its primary tax reserves. Under city code, at least 25 percent of all income tax monies collected must be deposited into the general fund subfund.
The ordinance establishes that subfund monies must first be distributed for transfers to the debt retirement fund sufficient to pay bond principal, interest, and debt issuance costs. Following debt retirement obligations, council may appropriate remaining balances excluding personnel costs for current fiscal year expenditures and advances.
Annual Reduction Formula and Auditor Directive
To curtail non-debt withdrawals, the legislation targets miscellaneous operational spending. Beginning Jan. 1, 2027, miscellaneous non-personnel operating expenses cannot exceed 90 percent of the total spent in that category during the prior fiscal year.
To administer the restriction, the legislation directs the City Auditor to classify expense categories and categorize all expenses incurred within the subfund since Jan. 1, 2026. At the close of each fiscal year, any remaining unencumbered cash must be transferred to the debt retirement fund.
Friction Over Operating Draws and Overtime Deficits
According to the legislation's background, direct expenses have consumed an increasing share of revenue since the code revision creating the fund was enacted in 2019.
Previously, Pique reported on Oct. 23 that Columbus City Council was weighing changes to the municipal tax reserve alongside a proposed software transfer. Under that measure, council placed on its schedule an ordinance to authorize an agreement with Dell Marketing LP for Microsoft Enterprise software licensing, drawing $3.93 million from the subfund.
Reserve fund tensions also surfaced earlier this year when the mayoral administration tapped $10 million from the subfund to offset public safety overtime deficits. In response, lawmakers passed legislation ordering a 10-year audit of police and fire overtime spending ahead of deliberations on the 2027 municipal budget.
The proposed restrictions have also drawn scrutiny from labor leaders, with AFSCME Local 1632 President Will Harmon warning city leaders against balancing budget shortfalls on the backs of municipal workers.
How we know this
The sources and records behind this story, with the facts they support.
Supporting evidence (11)
The proposed city code change would establish a ceiling for direct expense out of the Income Tax Set Aside subfund.
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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.
According to the legislation's background analysis, using reserve funds for ongoing operational expenses is inconsistent with generally-accepted accounting standards and potentially places the city's credit rating at risk.
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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.
The analysis warns that using reserve cash for direct operational expenses inhibits the city's ability to manage its capital portfolio and pay down outstanding municipal debt.
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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.
According to city legislative records, the measure is designated for second reading.
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Status=Second Reading
Under city code, at least 25 percent of all income tax monies collected must be deposited into the general fund subfund.
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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:
The ordinance establishes that subfund monies must first be distributed for transfers to the debt retirement fund sufficient to pay bond principal, interest, and debt issuance costs.
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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.
Following debt retirement obligations, council may appropriate remaining balances excluding personnel costs for current fiscal year expenditures and advances.
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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.
Beginning Jan. 1, 2027, miscellaneous non-personnel operating expenses cannot exceed 90 percent of the total spent in that category during the prior fiscal year.
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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.
To administer the restriction, the legislation directs the City Auditor to classify expense categories and categorize all expenses incurred within the subfund since Jan. 1, 2026.
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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.
At the close of each fiscal year, any remaining unencumbered cash must be transferred to the debt retirement fund.
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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.
According to the legislation's background, direct expenses have consumed an increasing share of revenue since the code revision creating the fund was enacted in 2019.
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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.
Columbus City Council Weighs Tax Reserve Changes and $3.93 Million Software Transfer
Supporting evidence (6)
Hardin previously introduced legislation to amend Chapter 362 on the use of the income tax reserve on Oct. 19.
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Council President Shannon Hardin introduced legislation under the council's Rules and Policy Committee to amend Chapter 362 of Columbus City Codes on the use of the Income Tax Set-Aside subfund, according to the Oct. 19 meeting agenda.
Previously, Pique reported on Oct. 23 that Columbus City Council was weighing changes to the municipal tax reserve alongside a proposed software transfer.
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Columbus City Council Weighs Tax Reserve Changes and $3.93 Million Software Transfer
Under that measure, council placed on its schedule an ordinance to authorize an agreement with Dell Marketing LP for Microsoft Enterprise software licensing, drawing $3.93 million from the subfund.
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The proposal comes as council placed on its Oct. 26 schedule an ordinance to authorize the Department of Technology to enter an agreement with Dell Marketing LP for Microsoft Enterprise software licensing, drawing $3,932,230.79 from the unappropriated balance of the General Fund Income Tax Set-Aside subfund.
Reserve fund tensions also surfaced earlier this year when the mayoral administration tapped $10 million from the subfund to offset public safety overtime deficits.
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Earlier this year, the mayoral administration tapped $10 million from the subfund mid-year to offset police and fire overtime overages, drawing scrutiny from council members as public safety overtime deficits widened toward an estimated $23 million.
In response, lawmakers passed legislation ordering a 10-year audit of police and fire overtime spending ahead of deliberations on the 2027 municipal budget.
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Official meeting records document proceedings on Ordinance 2758-2026: Historical Police and Fire Overtime Expenses Reporting. Lawmakers passed that measure ordering a 10-year audit of public safety overtime spending before making final decisions on the city's 2027 operating budget.
The proposed restrictions have also drawn scrutiny from labor leaders, with AFSCME Local 1632 President Will Harmon warning city leaders against balancing budget shortfalls on the backs of municipal workers.
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Will Harmon, president of AFSCME Local 1632, testified before council members during the public comment period, warning city leaders against balancing municipal budget shortfalls on the backs of city workers or shifting public jobs toward outside contractors.