Monday, May 09, 2005

Funding of the CIC with Taxpayer’s Funds Hastens Financial Calamity for North Canton

Prepared Comments Made to
May 9, 2005

North Canton is suffering financially from the slow demise of the Hoover Company. Its presence here in the community continues to slip away.

This is a fact that I believe everyone here can agree on. The parent company of Hoover, the Maytag Corporation, is slipping away as well.

What is North Canton doing to prepare for a future without the presence of each of these corporations? The City of North Canton is resorting to a practice that was abandoned a century ago. Rather than conserve existing funds, North Canton has resorted to “bleeding” its remaining taxpayer funds with legislation to fund the CIC.

Until modern times, when an individual was ill, whether it was a minor or serious illness, the most commonly used remedy was phlebotomy, or better known to most people as “bloodletting” or “bleeding.”

Bleeding was used as a solution to many health ailments during the 1800s in this country, but there were often serious consequences.

For one thing, bleeding a person actually lessened the chances for a healthy recovery as it greatly weakened the patient. In 1799, George Washington was treated for acute laryngitis by use of heavy bleeding. Washington died some 24 hours later.

The approval by this council to remove $1,500,000 from the General Fund to fund the CIC is bloodletting of a different kind but with the very same dire consequences for the taxpayers of this city. Just two years ago, the carryover for the City of North Canton was approximately $17 million. Today it is $5.9 million.

If you remove $1,500,000 to fund the CIC, that brings the carryover down to $4.5 million.

How long will that carryover balance of $4.5 million last after Maytag terminates the remaining jobs left here in North Canton.?

The end of the remaining jobs at Hoover are close at hand and instead of conserving remaining taxpayer funds, Mayor Tom Rice has asked this council to “bleed” away the financial stability of this city.

On April 25, 2005, Reuters reported shares of Maytag Corporation touched a 14-year low and fell another 5 percent after Maytag reported a lower quarterly profit and slashed its outlook. Longbow Research analyst David MacGregor said in a research note, “We believe it may be too late to salvage this company as an independent player in the major appliance business.”

In the same report, Prudential analyst, Nicholas Heymann said in a research note, “It’s not hard to imagine that Maytag could be required to enter bankruptcy if it can’t secure additional funds to undertake additional cost restructuring, can’t complete its intended cost restructuring in an expedited time frame, or if the intended benefits fail to materially positively impact earnings.”

Mayor Rice, I would like to use the same comments from Prudential analyst Nicholas Heymann regarding Maytag and ask you this question.

Would the construction of an upscale restaurant on Main Street in North Canton have a materially positively impact on income tax revenues?

I think we all know the answer to that question!

In an AP report, dated April 22, 2005, I quote the following. “The company said it will take “more aggressive steps” to restructure its manufacturing operations and cut costs….”

The AP report continues with this. “Chairman and CEO Ralph Hake said that the company is looking at plants in its hometown of Newton and in North Canton, Ohio, and Florence, S.C., in its efforts to reduce costs.”

Financial analysts are saying it may be too late to salvage Maytag and that bankruptcy is imminent. What does this all mean for Hoover in North Canton?

It means a swift end of the union contract for the remaining Hoover employees as Maytag continues to cut costs.

It is obvious that Maytag’s cost cutting apparently has not had the intended benefits to materially positively impact earnings for Maytag. But it has had a materially negative impact on income tax revenues for this city.

And that is why we are all here. We are interested in North Canton’s financial health.

At the March 7, 2005, Council of the Whole meeting, Finance Director Julie Herr indicated that if “…Hoover ends up leaving, that’s $1 million in income tax gone.”

That leaves a rather simple math problem in terms of how long will the remaining carryover funds last when decreased by at least $1.0 million a year.

I guess I should be fair and say that if Mayor Tom Rice is able to fund the CIC with the funds he has requested of council and he is able to attract an upscale restaurant with the necessary liquor license, we will all be able to eat and drink well while financial calamity becomes our reality.

But what is the reality that is looming on the horizon for the taxpayers of North Canton? Increases in the income tax rates and the ending of credit for taxes paid to other communities are what are on the horizon. How economically competitive is that going to make the City of North Canton?

I ask this council to stretch what remains of North Canton’s carryover funds.

Mayor Rice, I ask that your administration scrutinize its spending practices and spend taxpayer funds as if that dollar was their last dollar. Because the remaining carryover funds are their last dollars.

It is not likely that North Canton will ever accumulate a carryover to the magnitude of $17 million dollars, or for that matter, the $5.9 million carryover that we have remaining.

Economic development will be the last thing on people’s minds when the news of the day changes to the financial shortfalls facing the City of North Canton. And that news will be here sooner than you can “Imagine North Canton.”

Thank you
Chuck Osborne
City of North Canton