A riff on Kasich's budget
Veteran statehouse reporter Tom Suddes dissects the governor's solution to the deficit crisis--and adds a few ideas of his own.
John Kasich may be the state's most conservative governor since the 1950s. Photo by Dan Trittschuh.
Kasich’s so-called Jobs Budget—Democrats say it’s anything but—is the 14th Ohio budget I’ve dissected since 1983, when the Cleveland Plain Dealer assigned me to Columbus as a Statehouse reporter. And Kasich’s, as proposed, may be the one true game changer compared to its 13 forerunners.
Ohio budgets two years at a time, beginning in the odd-numbered years. This budget year there was so much statewide curiosity about Kasich’s conservative priorities that Ohio’s two largest dailies, the Dispatch and the Plain Dealer, offered readers interactive opportunities on their websites to try to eliminate the estimated $8 billion budget deficit just for fun.
My stabs at the two budget gizmos produced state surpluses of $1.48 billion (over two years, 18 cents a day per Ohioan) or $1.67 billion (20 cents a day per Ohioan over two years), depending on which site I ran my numbers.
My brainstorms differ from Kasich’s. Mainly, unlike the governor, I think Ohio should raise certain taxes and impose an entirely new one: I’d tax spending by statewide political campaigns. (I’ll elaborate later on this and other, albeit highly unlikely, solutions.) Meanwhile, here’s an option that’s not in my budget scenarios, but I think should be considered—and might well be a crowd pleaser.
Why don’t we cut the General Assembly down to size? That is, let’s go unicameral, as Nebraska (now in Ohio’s league, at least in the Big Ten) did long ago. Abolish the state’s two-house legislature and let one house, call it whatever, write Ohio laws.
Based on 2011-’13 budget spending requests by the Ohio House and state Senate, each of Ohio’s 132 state legislators (33 senators, 99 representatives) theoretically costs taxpayers about $445,000 over two years in gross General Assembly operating costs—staffing, office supplies, overall clerical operations. And that’s not counting the costs to Ohioans of corporate giveaways and pet hometown pork-barrel projects tucked into legislation. (In fairness, the National Conference of State Legislatures has reported that as of 2008, on a per resident basis, Ohio spent less on its legislative branch than any state except Georgia.)
The General Assembly’s sages produce more hot air than a steam laundry. That’s one factor behind a favored maxim of Statehouse lobbyists, “I spent a year in the Ohio Senate one day.” Shrinking the General Assembly to 66 seats and confining lawmakers to one legislative chamber might not only dehumidify the Statehouse, but also cut the legislature’s overall two-year operating cost to Ohio taxpayers by $29 million. That amount, incidentally, is 115 times the $251,000 annual state subsidy to the Ohio State Fair Junior Fair—a subsidy Kasich’s budget would junk in 2012.
The Junior Fair began, according to a 2010 State Fair Media Guide, in 1929, and “Ohio is proud to host one of the nation’s largest junior fairs with more than 17,000 youth participating.” After Kasich proposed his budget, fair officials told the Dispatch the Junior Fair will continue and that the subsidy had been shrinking anyway. Still, give Ebenezer Scrooge Kasich this: He took on a sacred cow—arguably, a herd of them—and that’s not something Ohio governors typically do.
Overall, the 2011-’13 budget Kasich has proposed would have an “ending fund balance”—officeholders hate the word “surplus” and, besides, accountingwise, this sum really isn’t one—of $135 million on June 30, 2013. That’s peanuts. If it’s supposed to be a financial cushion, sandpaper is silk.
Kasich’s two-year, $55.5 billion budget, which he unveiled March 15, is the product of conservatism; he’s probably Ohio’s most conservative governor since Democrat Frank Lausche left the Statehouse for the U.S. Senate in 1957. “I think this is an ideological budget,” says veteran Democratic publicist Dale Butland, speaking for Innovation Ohio, a progressive policy tank. “It will destroy literally thousands of existing jobs,” including laying off as many as 7,000 teachers.
Ideological or not, Kasich found a number of real-world budget dilemmas on the Statehouse steps when he arrived Jan. 10:
• The Ohio Constitution, unlike the federal constitution, requires a balanced budget and sharply limits state debt unless voters authorize it. The debt limit was imposed in 1851, after Ohio nearly had bankrupted itself by investing in canals and turnpikes. The state’s fiscal rule of thumb, like Mr. Micawber’s in Dickens’s David Copperfield (published, coincidentally, in 1849-’50), is that a deficit makes “the blossom . . . blighted, the leaf . . . withered.”
• Ohio’s economy: Shepard Fairey’s celebrated 2008 Barack Obama poster promised “HOPE,” but it is still scanty in Ohio. When Republican Gov. Bob Taft proposed a $44.9 billion state budget early in 2001, Ohio’s unemployment rate was 3.9 percent. (That’s not a typo.) In February, the latest month available, Ohio’s jobless rate was 9.2 percent.
• Perception: Democratic Gov. Ted Strickland’s last general-revenue fund budget—the GRF is Ohio’s main checking account and most often used for (supposedly) apples-to-apples budget comparisons—totaled about $50.5 billion. At $55.5 billion, Kasich’s is, on paper, roughly 10 percent bigger.
That’s conservatism? Yes and no: Ronald Reagan praised the “magic of the market.” In Ohio budgeting, there’s something more magical and completely bipartisan: accounting. Strickland accounted for some Medicaid costs one way, Kasich another way. Ohio will be paying a bigger bite of Medicaid costs because a temporary federal-share uptick is ending. That may bloat Kasich’s budget numbers.
Actually, in purchasing power, Kasich’s $55.5 billion budget plan could be seen as smaller than Taft’s $44.9 billion plan of 2001. According to the Bureau of Labor Statistics, $1 spent in 2001 had the same buying power as $1.25 spent in 2001. And 125 percent of that 2001 budget could be $56.1 billion today.
• Here’s a good for instance of the math and politics Kasich confronts: Ohio’s current budget, which Strickland signed in mid 2009 and expires this June 30, spent about $8.4 billion in one-time money, according to the nonpartisan Legislative Service Commission (LSC).
Of that $8.4 billion, just less than $2 billion was federal stimulus aid, courtesy of Washington, D.C.—money Ohio won’t see again. Other pots of one-time money included $736 million gained from “restructuring” (refinancing) state bonds; $844 million gained by postponing a planned income-tax cut; $335 million in unclaimed funds (Ohioans’ forgotten bank accounts, utility deposits and such); a $250 million “loan” from the School Facilities Commission and the diversion to human service programs of more than $600 million in anti-smoking funds. The rest essentially was made up by fishing nickels and dimes out of Statehouse couches.
Politically speaking, it was all but impossible for Strickland and Ohio’s then-Democrat-run House to refuse the federal windfall. But Ohio’s 600 plus school districts and countless local governments evidently thought the Tooth Fairy would make a return appearance. He won’t. Still, in city halls and school boards across the state, wails over Kasich’s budget rise like incense in a burner.
• Ohio’s hugely expensive Medicaid healthcare plan is ballooning like a glutton. Kasich has said, and he’s right, that, “Ohioans spend more on Medicaid—the healthcare program for low-income families—than on any other single program in the budget.”
This January alone, 12,000 more Ohioans qualified for Medicaid, making the state’s total Medicaid enrollment 2.16 million people. That is, taxpayers now cover the healthcare tab for 19 of every 100 Ohioans. And President Obama’s new healthcare plan will add an estimated 554,000 more Ohioans to Medicaid.
And though older Ohioans compose only a fraction of the state’s overall Medicaid caseload, the cost of caring for them, especially in nursing homes, is hugely expensive. The Ohio Department of Aging has reported that the per-client, per-month cost of nursing home care is more than $5,000.
To make budget policy even more complex, the proportion of older Ohioans is growing. According to the LSC, “The percentage of Ohioans age 70 or older is . . . projected to increase from 9.7 percent [the proportion in 2000] to 14.9 percent [in 2030].” Unless something changes, those trends will hugely boost the long-term-care costs of the Medicaid program.
According to the Health Policy Institute of Ohio, “Although nearly eight in 10 Medicaid enrollees is a child or parent, their care accounts for less than a third of all Medicaid expenditures.” That is, older or disabled Ohioans compose 20 percent of the state’s Medicaid client list, but require perhaps 70 percent of Medicaid spending.
• Kasich is taking a chainsaw to state aid to local governments and schools. The governor and his legislative allies argue that neutering public employee unions (depending on your politics, the celebrated or cursed Senate Bill 5) will hold down personnel costs for schools and local governments. According to Republican reasoning, that will help officials and school boards do more, or just as much as they do now, with less state aid. Then, too, Kasich wants to increase public employees’ pension contributions by 2 percentage points and cut the share of employers/taxpayers by 2 percentage points.
But the vehicle for reining in unions, Senate Bill 5, hasn’t had smooth sailing, even among Republicans. Consider the Senate, led 23-10 by the GOP. Seemingly, the members of the minority party aren’t enough of a challenge for the Republicans to bother with. Instead, feuding Senate Republicans, rent by jealousy and clashing ambitions, split, with only 17 of the 23 voting for it. (Kasich signed the law after House passage in late March.)
• Kasich has sworn off tax increases, which can only surprise someone who’s been on Mars for the last 30 years of American politics.
Across the board, Ohio income-tax rates are 21 percent lower than they were in 2004. Ohio has abolished two business taxes—the corporate franchise tax and a property tax on business equipment and inventories. They have been replaced, so to speak, with an underperforming Commercial Activity Tax (gross receipts).
Strickland himself kicked a hole in state finances by removing the income ceiling for older Ohio homeowners who want to claim a “homestead exemption.” That change made nearly 600,000 older Ohioans eligible to claim the exemption, including, theoretically, such billionaire homeowners as Les Wexner and Cincinnati’s Carl Lindner. That bloated eligibility will cost other Ohio taxpayers an estimated $500 million over the next two years. (The state reimburses school districts and local governments for the cost to them of homestead exemptions.)
Now, about that $8 billion budget hole. Kasich says his budget sews it shut, as noted, by writing off almost $2 billion in federal stimuli. That prunes the ostensible gap to $6 billion. Kasich proposes picking up $2 billion by reducing make-up money the state gives schools and local government for that repealed “tangible personal property” tax on business equipment and inventories.
Kasich also aims to pick up a combined $1 billion by leasing Ohio’s wholesale liquor monopoly and by restructuring some state bonds. (Strickland refinanced bonds, too, but for two years, not the one year Kasich’s budget seeks.)
That narrows the theoretical hole to $3 billion. Then Kasich plans to sell five state prisons (net gain, maybe, $200 million). Then, hammering down state aid to local governments and public libraries (saving maybe $700 million) slims the total gap to about $2 billion. Kasich also wants to charge a fatter state “franchise fee” (tax) on hospitals and to squeeze the prices Ohio nursing homes charge Medicaid. Add to those moves maybe $500 million to $600 million in revenue growth—that is, Ohioans spending and earning more, and so paying more to Columbus, a trend the Census Bureau confirmed March 29—and, voila, the Kasich budget is balanced, as legally required. And it gets that way by putting a lot of people, services and agencies in a vise. The next step is for the House and Senate to debate the merits and make changes to meet the deadline of June 30.
Could there be easier (arguably, fairer) ways to balance the budget? You bet. (Full disclosure: I teach on a year-to-year basis at Ohio University, and so won’t discuss higher education funding either way.)
Here are my alternatives, which, like Kasich’s budget, assume federal stimuli are gone for good and cannot be replaced. And yes, the imaginary Muzak tune you may hear as you read this could be entitled “Tax, Baby, Tax.”
• It’s probably too late now, but Ohio should postpone the final phase of its series of income-tax cuts. Postponement would produce $800 million for the budget, closer to $900 million if the economy picks up.
• Double Ohio’s tobacco taxes. This fiscal year, the state’s tax on cigarettes ($1.25 a pack) and other tobacco products (17 percent of the wholesale price) will produce about $890 million, the Taxation Department has estimated. If doubling the tax produced about $1 billion more, that, plus postponing the income tax cut, fills almost $2 billion of the remaining $7 billion hole.
• Ohio should levy the state’s 5.5 percent sales tax on all spending by statewide and General Assembly political campaigns, including ballot issue campaigns. Last year, according to the Dispatch, all of Ohio’s statewide nonjudicial candidates spent $67.2 million on their campaigns, with the legislature’s four caucuses dropping an additional $25 million.
At 5.5 percent, the tax on campaign spending would have produced more than $5 million—and easily could have funded the Ohio Elections and Ethics commissions and both state inspectors general. The tax would be a real bonanza this year, when unions and anti-union forces could spend $25 million in campaign money on a Senate Bill 5 referendum. (A 5.5 percent tax on $25 million would produce almost $1.4 million.)
• Eliminate half of the state’s tab for real-estate tax “rollbacks.” (And restore the income lid for the homestead exemption.) The state picks up the tab for 10 percent of local taxes on all residential and agricultural real estate parcels (or 12.5 percent on owner-occupied dwellings and up to one acre of land). That will cost about $3.5 billion over the two years of Kasich’s budget. Halving rollbacks and crimping the homestead exemption might produce $1.75 billion in budget-balancing cash.
Would homeowners like that? No. But real estate taxes are deductible on federal income tax returns. And the relatively small rollbacks hide the real cost of local government, a cost Kasich says taxpayers should know so they can control it.
Then, apply the sales tax to these exempt transactions: sales made to churches and nonprofits (picking up maybe $802 million over two years, according to state estimates); to packaging (that is, litter) and packaging equipment (a two-year gain of maybe $525 million); to the value of motor-vehicle trade-ins ($274 million, also over two years).
Letting Ohio’s racetracks, including Scioto Downs and Beulah Park, install video lottery terminals (VLTs) could sluice $500 million in VLT license fees and taxes to the state treasury. (It appears that, legally speaking, Kasich is free to allow VLTs; he likely will, but it’s a matter of when.) That gets us to a hole of roughly $250 million, easily closed by applying the state sales tax to the fees charged by Statehouse lobbyists and Ohio lawyers. They’ll more than make it up.
So, minus the lost-forever $2 billion in stimuli, the brainstorms charted here would balance the state budget—and clear the decks for a Senate Bill 5 referendum that will be Ohio’s donnybrook of donnybrooks.
Tom Suddes is an editorial board member of the Cleveland Plain Dealer, columnist on Ohio politics and an adjunct assistant journalism professor at Ohio University.