Local governments recovering despite supposedly brutal cuts

Greg R. Lawson May 23, 2014

The cost of local government is a critical issue for Ohio’s future economic growth. As The Buckeye Institute described in our 2011 Joining Forces report, Ohio has the seventh highest number of municipalities (938) and townships (1,308) in the nation and there is a cost to having so much government in Ohio. In 2010-2011, according to the Ohio Department of Taxation, the tax burden of local government in the state ranked Ohio as 12th highest as a percentage of personal income. These kinds of costs, combined with a still unreformed labor environment, make Ohio a less attractive place to do business and help to explain why other states have grown more robustly over the last several decades.

It is important to keep that in mind as many local governmental bodies lament the cuts made by Governor Kasich and the General Assembly to the Local Government Fund as well as the elimination of the estate tax. If the recent bus tour by Democratic gubernatorial nominee Ed FitzGerald is any indication, a number of local elected officials clearly assume they have a revenue problem and vociferously blame Columbus. All too many officials appear unwilling to consider that what they actually have is a spending problem. These same officials also conveniently fail to mention that the localities are recovering from the Great Recession thanks to a growing, albeit slower than desired, Ohio economy.

The Buckeye Institute is working on a report that will show that many counties, municipalities, and townships have seen their general revenues grow since the beginning of the decade despite decisions made in Columbus that have led to so much angst.  Many of them are actually sitting on significant unencumbered end of year balances. Those balances can act, if needed, as “rainy day funds.” In numerous cases those balances actually exceed, as a percentage of their revenues, the state’s own Rainy Day Fund that stands at 5 percent of the previous year’s general revenue.

This is a very different, and far more nuanced, story from the doom and gloom offered up on a daily basis to the news media regarding slashed services and “lack of investments” in the future.

Below are several illustrative examples with data supplied by the governments themselves to the Auditor of State.  More will be available in our forthcoming full report.

Government Entity 2010 General Revenue 2012 General Revenue Unencumbered 2012 End of Year Balance Balance as a Percent of Revenue 
Cincinnati $338,202,000 $344,489,000 $60,766,000 17.6%
Cleveland $472,410,000 $497,056,000 $61,879,000 12.4%
Columbus $688,733,000 $707,292,000 $95,442,000 13.5%
Dayton $155,911,945 $157,220,534 $31,739,732 20.2%

While there are some communities where this picture is different, the challenge for local government officials is to realize the need to change and grow the entire Ohio economy. They need to confront the reality that Ohio’s economy has been a laggard nationally for over half a century and that many of the problems they face are not the result of changes coming from Columbus in the last few years, but the result of decades of poor state policy.

While the South and West were rapidly expanding their populations, Ohio hasn’t. One needn’t look further than the fact that Ohio’s Congressional delegation has shrunk by a third since the 1960s, from 24 to 16. This has costs that reverberate through all levels of Ohio’s governments.

Dramatic reforms in Ohio including Right to Work, further state, and especially local tax reform are essential to jolt the state out of its economically dreary status quo.

Raising taxes so local governments can go back to the way things always have been is not a long-term answer to Ohio’s challenge; indeed, it further worsens conditions that have made Ohio less competitive. A better solution is to facilitate shared services, reform taxes at all levels of government and engage in collective bargaining reform.