HUNTINGTON -- Mayor Kim Wolfe will propose a 1 percent occupation tax that would be levied on the gross wages of anyone who works in Huntington.

The mayor's plan, which would take effect July 1 at the beginning of the city's 2010-2011 budget year, will go before Huntington City Council's Finance Committee at 5:15 p.m. Wednesday, April 14, at City Hall.

Wolfe, who met with The Herald-Dispatch's editorial board Tuesday to discuss the proposed tax, said it's the best option to offset revenue shortfalls and keep the city moving forward.

"We have three other options. We could increase the user fee, implement larger taxes on businesses or do nothing," Wolfe said. "I'm convinced that to maintain the momentum that we've seen over the past year, an occupation tax is part of the plan."

Wolfe and council members have wrangled with a 2010-2011 budget strapped with recession-weakened revenues. That forced the mayor to propose furloughs for all city employees and layoffs to eight civilian employees in the Police and Fire departments in the initial budget that he presented to the council in February.

Council members have since restored funding to prevent furloughs and layoffs in the police and fire departments. But 20-day furloughs for most public works and administrative employees, along with $867,000 in unspecified cuts across 10 departments, remain in the $40.2 million budget that the council adopted last month. Wolfe's administration has warned that the unspecified cuts would likely result in layoffs.

The city gained the authority to implement a 1 percent occupation tax when it became part of a five-year home rule pilot program in 2008. Three other West Virginia cities received home rule powers under the program, but Huntington was the only one that proposed changes to its tax structure. An occupation tax is a tax on earnings (wages, salaries and commissions) related to a job or profession.

The ordinance for the occupation tax is still in the draft stage, but many of the details already have been ironed out, Finance Director Deron Runyon said.

The occupation tax would replace the $3-a-week user fee, which must be repealed, according to the city's home rule plan. Under the weekly user fee, everyone who works in Huntington pays $156 a year, regardless of income.

Many workers would pay more with a 1 percent occupation tax. For example, someone who makes $50,000 a year would pay $500 to the city. There would be no cap on the amount of income for which the city could collect. Those earning less than $10,000, however, would be entitled to a refund, Runyon said.

The city's Finance Division would be responsible for collecting the tax. No other state or federal agency would be required, Runyon said. The city would collect the tax much like it collects the user fee, he said. Employers would withhold the tax from their workers' checks and remit the payments to the city on a weekly, monthly or quarterly basis.

Revenue estimates for the tax range from $8 million to $11 million, based upon 2008 calculations from Marshall University's Center for Business and Economic Research. By comparison, the user fee generates about $4.5 million annually.

Revenue during the first year of the tax would only yield about $6 million because of delayed collections, Runyon said. After repealing the user fee and offsetting the furloughs and $867,000 in unspecified cuts, the city would net between $400,000 and $800,000 in additional revenue next year, Runyon said.

The administration will recommend to City Council that those revenues be used for one-time expenditures such as paving, reducing debt or short-term reductions in existing fees and taxes, said Brandi Jacobs-Jones, director of administration and finance.

Even though it was a central part of the city's home rule plan, the administration is recommending that City Council not reduce the business and occupation tax next year, Jacobs-Jones said. Any reductions in the B&O tax should not be implemented until it's known how much revenue the occupation tax will yield, she said.

The B&O tax is based on a business' gross sales. Like most West Virginia cities, it is Huntington's largest source of revenue, but it doesn't exist in rural areas of the state. Municipal officials say it's one of the largest hurdles to attracting businesses to cities in the state.

"There's no way to sugarcoat it," Runyon said. "Any additional tax is going to have some negative effect on businesses."

But not implementing the occupation tax and allowing city services to decline would be a greater deterrent to business growth, Jacobs-Jones said.

Wolfe added he feels more comfortable with an occupation tax after meeting with officials in Ashland, which imposes a 1.5 percent occupation tax. Kentucky gave its cities the option of implementing an occupation tax in the late 1940s, and many cities in the Commonwealth now have one.

"Ashland heard the concerns, too, but they've seen an increase in the business climate, infrastructure improvements and a reduction in crime," Wolfe said.

In addition to the occupation tax, Huntington is scouring all of its departments for efficiencies, Jacobs-Jones said. The argument could be made that Huntington is offering a similar level of service as Ashland and Charleston with much less revenue, she said. Ashland, with a population of approximately 21,000, has a budget of $35 million. Charleston's $80 million budget doubles Huntington's, even though the cities are comparable in population, she said.

Because the occupation tax is being implemented under the five-year home rule pilot program, the city will need some sort of an exit strategy if its authority to collect the tax is taken away, Runyon said. If that occurs, the city likely would reinstate the user fee at an increased rate. Other revenue sources such as the municipal fee would have to be evaluated as well, he said.

But Wolfe said he is confident the occupation tax will prove its worth in Huntington, and the Legislature will eventually allow other cities to implement it. He noted that Gov. Joe Manchin is a strong proponent of the home rule program and pointed to other successful ventures under Huntington's home rule plan that have been approved for statewide implementation.

Wednesday's Finance Committee meeting will serve as the first of two public hearings on the occupation tax, committee chairman Steve Williams said. The second public hearing is set for 5:15 p.m. Thursday, April 22. The Finance Committee could decide at that meeting whether to pass the occupation tax on to the full council with a positive recommendation, Williams said.

The first reading of the occupation tax ordinance would go before City Council on Monday, April 26. The final vote would come during a special call meeting set for May 3, Jacobs-Jones said.

There are administrative procedures that the city would need to work out with employers before the tax goes into effect July 1, Jacobs-Jones said.

The Huntington Regional Chamber of Commerce surveyed its members in February about a number of issues regarding the city, including the possibility of an occupation tax. Of the approximately 75 companies that responded, 70 percent said the idea of eliminating the $3-a-week user fee and establishing an occupation tax either won't make a difference or will take the city in the wrong direction. A smaller number -- 51 percent -- said they would move or consider moving outside the city if a 1 percent occupation tax is imposed with no reduction in the Business and Occupation tax.

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