Local Governments Say They're Hurting From Change In Estate Tax Laws

CLEVELAND (AP) - A change in the estate tax law is under fire from local governments struggling to make increasingly tight budgets cover their expenses.

The change, enacted in 2000 by the Republican-controlled Ohio legislature, raised the amount an estate must be worth to be taxed to $200,000 or more for those who died in 2001 and $338,000 or more for those who died after Jan. 1, 2002. Estates valued at $25,000 were taxed under the old law.

Although the change allowed heirs to keep more of an estate's assets, it also cut state and local governments' revenue by $60 million last year and an estimated $140 million this year.

The state raised $400 million in the last year of the old law.

State lawmakers should have found a way to replace the lost revenue when it changed the law, said Parma Auditor Dennis Kish.

Reductions from the tax are especially difficult because of other cuts by the state, said John Mahoney, deputy director of the Ohio Municipal League.

An estate's assets usually include a home, a car, savings accounts, investment accounts, home furnishings and other valuables, like jewelry. Estates are taxed on a scale that starts at 2 percent of their worth and increases with their value.

State figures showed that about 70 percent of the estates in Ohio would be exempt from the tax after the taxable value was raised to $338,000.

Garfield Heights Mayor Tom Longo estimated that his city will lose about $300,000 this year from the law's changes. An average home in Garfield Heights costs about $80,000.

Communities should not count on estate taxes, because the timing of death is uncertain and is a difficult revenue to predict, said Medina County Auditor Mike Kovack.

Still, several cities factor that revenue into their budgets.

Longo said local taxes will have to increase or local spending must decrease to make up for the loss.

"They just gave it away," Longo said. "They didn't take into consideration that the economy might go down. It just wasn't well thought out."

(Copyright 2002 by The Associated Press. All Rights Reserved.)