Ohio tax revenues: Good news for state budget talks

Logan Kolas Jan 11, 2021

This opinion piece appeared in The Lima News.

Ohio has a chance to build on a relatively successful economic response to the COVID-19 pandemic. Gov. Mike DeWine’s executive budget should take it. As he sets spending priorities for the next two years, DeWine should limit proposed spending increases, cut unnecessary spending, and strategically use the state’s rainy day fund to keep Ohio on a prosperous, sustainable fiscal path.

The pandemic quickly cratered Ohio’s budget surplus — flipping a $200 million surplus in February to a $775 million deficit by the end of April — and forcing state lawmakers to make hard choices. Fortunately, Ohio has taken lemons and made lemonade. Responsible decisions early in the pandemic to freeze spending, along with prudent budget cuts, preserving the rainy day fund, and better-than-expected state tax revenues have positioned Ohio well heading into the next budget cycle.

Tax revenues provide the lynchpin between sustainable spending and healthy budgets. Without sufficient tax revenues, governments can’t maintain spending and services without incurring risky debts and deficits. Lockdowns and stay-at-home orders unsurprisingly limited sales tax revenue early in the pandemic, but a quick rebound in consumption has seen sales and use tax revenue help sustain Ohio’s budget. And the good news is that even during the pandemic and lockdown, Ohio’s tax revenues have dropped only $412 million — just under 2.3 percent — over the same period in 2019. Barring unforeseen economic disruptions, perhaps brought about by a surging pandemic, these numbers will likely improve as Ohio returns to work and the unemployment rate continues to fall.

Ohio’s economy remains relatively well-positioned compared to its peers. While at least 17 other states have already made withdrawals from their rainy day funds, Ohio’s fund boasts just under $2.7 billion — exceeding anticipated shortfalls— because policymakers made prudent budget cuts and waited until the budget picture became clearer before tapping state reserves. A “misery index” that compares state-level unemployment and COVID-related deaths ranks Ohio (among states with more than 10 million people) as the state with the least “misery”—reassurance that Ohio has reacted responsibly to the pandemic. And recent data from the Bureau of Economic Analysis also show that household savings are holding up well under the circumstances, which should further boost sales tax revenues once the pandemic has subsided.

Prudent financial decisions early in the pandemic coupled with stronger than expected tax revenues have laid a strong foundation for Ohio’s financial house to weather this viral storm. DeWine should continue building on that foundation in his forthcoming budget, and lawmakers would be wise to limit spending increases, cut unnecessary spending, and then strategically withdraw from the rainy day fund to cover any lingering budget gaps, all while avoiding the well-intended but disruptive temptation to raise taxes.

Tough times require tough choices, but so far, Ohio has made the right choices.

Logan Kolas is an economic policy analyst with The Buckeye Institute’s Economic Research Center.