FOCUS ON OHIO POLITICS: Tax change, budget holes and how to fix them

Republican Gov. John R. Kasich announced Thursday that $800 million ($400 million per fiscal year) must be sliced from Ohio’s proposed 2017-19 budget. Reason: State tax collections are drooping.

His timing was good, because the Ohio House, run by Kasich’s fellow Republicans, hasn’t finalized its rewrite of the proposed two-year budget (House Bill 49) that Kasich’s administration drafted. Better for everyone to know now about the budget squeeze.

Among other things, Thursday’s announcement makes it easier for Kasich and House Speaker Clifford A. Rosenberger, a Clarksville Republican, to say “no” to the army of wheedling Statehouse lobbyists seeking more state spending money for clients or causes.

Still, Thursday’s announcement has political consequences because Statehouse officeholders, regardless of supposed “philosophy,” prefer saying “yes” to saying “no.” If they can say “yes,” they can make more friends among campaign contributors and lobbyists.

True, in terms of Kasich’s proposed budget, a $400 million tax hole isn’t staggering. But it isn’t spare change, either, because budgets are like a Rubik’s Cube. Move one part, other parts move, too.

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Ohio fiscal years start July 1. There are three ways to measure proposed spending. First, there’s the biggest number, the “all funds” total. It includes all proposed state spending, regardless of where the money for it comes from. For the year that’ll begin July 1, Kasich proposed $67.2 billion in “all funds” spending.

The next number is “total General Revenue Fund spending,” a sub-category of “all funds.” “Total GRF” is composed of state tax collections plus Medicaid money Washington sends Ohio. For the year beginning July 1, Kasich proposed $33.1 billion in total GRF spending.

But the third number, which practically speaking is the number legislators must likely work with, is “state only” General Revenue Fund spending. The “state-only GRF” amount is composed of total proposed General Revenue Fund spending – minus Washington’s contribution to Ohio’s Medicaid program. For the year that’ll begin July 1, the “state-only GRF” component of Kasich’s proposed Ohio budget is $24.7 billion.

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True, in terms of a $24.7 billion total, a $400 million budget cut is $1.60 per $100. But chunks of that $24.7 billion total are off-limits to budget-cutters, for legal or political reasons. For example, for the fiscal year that ended last June 30, the General Revenue Fund had to pay $1.3 billion in state “debt service” – money to repay GRF-backed bonds that Ohio sells to finance state construction and infrastructure projects. As for political factors that make budget-cutting tough, 2018’s statewide election comes mid-budget, so it’s hard to imagine legislators further cutting, for example, pet programs or agencies.

Based on what Kasich, Rosenberger and Senate President Larry Obhof, a Medina Republican, said Thursday, it appears Statehouse analysts haven’t pinned down just why tax collections are lagging. But here’s one possibility:

The “centerpiece of a major (Kasich) tax reform,” in the state Taxation Department’s words, means that “a business owner who files single or married filing jointly (may) deduct 100 percent of business income up to $250,000 from the adjusted gross income” reported on Ohio income tax forms. And “business income above these thresholds (is) taxed at a flat 3 percent.” Sweet, yes?

And – surely, it’s a coincidence – according to Ohio’s tax expenditure report, that tax “reform” will deprive the state’s cashbox of $580 million in foregone revenue for the year beginning July 1 – and $600 million in lost revenue in the following year.

That $1.18 billion revenue loss may be one reason Ohio faces an $800 million budget hole. But don’t expect GOP insiders to say so: Authors don’t knock their own plays.

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