In the latest issue of State Budgeting Matters, Richard Sheridan, tells how that Governor Strickland balanced his 2009-2010 budget — without new taxes or without significant cuts in spending. Sheridan says Strickland is using one time measures to temporarily increase state revenue, but, by 2011, Ohio will have no choice but to either increase taxes or dramatically cut spending.
The Tax Reduction Act of 2005, phased in over five years, is having a big impact on state revenue. Sheridan says, “The phased-in tax reductions will be complete by FY 2010 and so the state tax forecasts for FY 2011 are essentially foretelling what will become the pattern for state tax revenues into future years even after an economic recovery. What this suggests is that after FY 2011 the state will either have to make significant reductions in all categories of state spending, because of the reduced state tax levels as well as the elimination of federal funding that is expected to be used to ‘buoy up’ the forthcoming biennial budget, or increase state tax revenues.”
Strickland balanced his budget proposal using fee increases and one time measures — federal stimulus money, and $5.8 billion in “one time, non reoccurring, revenue enhancements.” These enhancements include almost one billion from the “rainy day fund,” (completely exhausting that fund), $2.7 billion from the “State Fiscal Stabilization Fund for Title XIII,” $800 million from “Education Grants From Title IX,” and a $200 million loan from the School Facilities Commission. Sheridan list nine one-time sources of income that Strickland is tapping. It’s a mystery to me, how the state can make a one-time extraction of money from these funds.
Sheridan says that tax receipts in December were $24.5 million below revised estimates and that by the end of June, he is predicting, the total shortfall will be in excess of $325 million.
Ohio has changed the formula for revenue sharing with local governments and Sheridan is predicting major shortfalls will negatively impact local budgets. He says, “With the exception of federal economic stimulus aid expected when Congress agrees on a final measure, local units of government can expect little help from the state in addressing their own funding problems and social and health service-providing agencies may be especially hard-hit.
Sheridan describes the budget process: “For the next five months (or more) it will wend its way through the legislative process, beginning with extensive hearings in five subcommittees of the House Appropriations Committee and ending with a budget produced by six legislators sitting on a conference committee to resolve differences that emerge between the Democratically-controlled House of Representatives and the Republican controlled Senate.”
