By Ohio standards, the recently passed state budget was one of the better ones put together in a long time. It had spending restraint, guardrails for containing Medicaid growth, excellent criminal justice reforms, and the beginning of reforms to occupational licensing. The Buckeye Institute has highlighted these already.

However, as with any budget, for all of the positive parts, there were still some bad things tucked in there. As we go through the literally thousands of pages of details, we will highlight a few of these.

One of the first to mention, is conference committee inserted language that requires the Director of the Department of Medicaid “to seek federal approval to increase the franchise fee in a manner that provides for the franchise fee to raise up to an additional $207 million each fiscal year beginning not sooner than FY 2019 and ending by the close of FY 2024.”

This is bad policy!

It is designed to make up revenues that county and transit authorities are due to lose as a result of the elimination of the Medicaid managed care sales tax. For several years after the expansion, these entities were getting a windfall through their piggyback local sales tax. However, the feds subsequently disallowed the managed care sales tax. This meant less money raised by the counties and transit authorities. If successful in obtaining a waiver from the feds, the state would then be allowed to raise extra revenue that it can send back to counties and local transit authorities as a replacement for the lost sales tax dollars.

This policy will effectively create yet another revenue sharing-like situation. For years, similar programs have allowed local governments to get money from Columbus and then turn around and blame Columbus every time that money is reduced or stopped. Basically, it allows them to shift responsibility for their own local spending choices rather than having to defend those choices to their own constituents. 

We have seen this play out with the phasing out of the tangible personal property tax and with reductions to the Local Government Fund. We have long called for the elimination of these types of funds.

Further, as The Buckeye Institute warned back in 2013 when the debate over Medicaid expansion was first taking place, it was entirely foreseeable that those revenues would not last. Counties and transit authorities should have planned for this, rather than ask the General Assembly for more money.

Now is the not the time to bring into existence a modified version of this kind of policy.

Another is the Rural and High-Growth Industry Jobs program.

While this is a tax credit scheme that at least uses the private sector, rather than government agencies, to invest in rural business enterprises, it is still gimmicky.  The program uses a complicated mechanism where tax credits are given to financial intermediaries that then invest in companies in targeted fields. Frequently, the investors make money but the hoped for jobs are either fewer than expected or don’t materialize at all.  In fact, many other states that have embraced similar programs have regretted it.  Even former Ohio Representative Jim Buchy opposed this measure in the last General Assembly because, as he is quoted in this article, “The jobs actually created by these are nothing near what they sold the Legislature on.”

Even if the Rural and High-Growth Industry Jobs program has greater protections than those in other states and accomplishes its purported goal, this still creates yet another tax loophole. In the long run, this makes the kind of systemic tax reform we have long called for more difficult to achieve. 

Overall, the budget is strong, but it could be even stronger without these misguided policies.