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Onwards to Conference Committee: Ohio’s Biennial Budget Passes the Senate

Greg R. Lawson Jun 23, 2017

As always, the state budget, passed every two years, is the single most important piece of legislation passed by the Ohio General Assembly. Tax, education, health care, criminal justice, and local government issues are all touched on in this critical legislation. Getting budget policy right means making sure resources are spent wisely on the things government must do. Just as importantly, it means enhancing liberty, creating a better environment for job and economic growth, and securing prosperity for Bob and Betty Buckeye.

The budget that cleared the Senate on June 21 is a very good step forward. However, there is always more that can be done. In this case, there is definitely more spending that should be reduced and bolder reforms that should be embraced on taxes, education, and health care. 

That said, as the next chapter of the budget commences and we move to the all-important Conference Committee, The Buckeye Institute has highlighted what has been done right and what can be done to improve the budget.

Spending

The Senate version of the budget decreased Governor Kasich’s original All Funds budget by $3 billion over fiscal years 2018 and 2019. The FY 2018 appropriations is an increase of 2.7 percent over the estimated FY 2017 spending, and the FY 2019 appropriation is 1.5 percent over FY 2018.

By historical budget standards this is positive. The average over the biennium comes in at 2.1 percent. Though this remains above recent inflation and state GDP growth, it tracks more closely than other recent budgets. For example, the previous biennial budget, when enacted, was an increase of 7.6 percent in the first fiscal year and 2.1 percent in the second for an average of 4.85 percent over the biennium.

When looking at state-only general revenues, we see an increase of $370.9 million over the proposed FY 2018-2019 budget when compared to the expected expenditures made in the previous biennium. This is an increase of only .8 percent. Given recent revenue shortfalls, this is important.

A further positive sign is the Senate maintained restraints on the ability of the Controlling Board to increase Medicaid spending. This is wise policy given the serious questions regarding potential changes in federal Medicaid policy.

Despite this positive spending restraint, there are areas where further cuts (see our Piglet Book) could be made in order to maintain long-term budget sustainability.

More than $200 million in increased foundation formula funding for education should be reconsidered. Ohio continues to spend ever-increasing amounts on K-12 education, with limited academic gains to show for it. Ohio needs a much broader conversation in how this money is spent. 

Also, more than $770 million in general revenue funding is still being spent as a revenue sharing distribution through the Local Government Fund (LGF). The Buckeye Institute continues to maintain this revenue should be used to further reduce personal income tax rates across the board. By reducing this revenue sharing, Ohio will empower local residents and taxpayers to hold their local officials accountable for local decisions.

Taxes

Ohio tax reform has led to positive economic growth for the state and this will continue over time as the state shows budget restraint.

Both the Senate and the House made the right call to not raise taxes or shift taxes to particular industries, such as oil and gas companies. Both chambers also rightly resisted the urge to hike the tobacco tax, which would open up the door for smuggling, in addition to other unintended consequences.

While The Buckeye Institute prefers Governor Kasich’s proposal to simplify municipal income tax filings for businesses, the current reform included by the Senate still allows businesses to avail themselves of a simpler system. While this is merely the tip of the iceberg when it comes to reforming Ohio’s singularly unique, complex, and burdensome municipal income tax structure, it is still a step forward.

Medicaid

The current version contains language pushing the Administration to seek both the Healthy Ohio waiver and a State Innovation waiver. When combined, these two waivers will control Medicaid costs, create personal responsibility requirements for Medicaid recipients, and will ease the transition to a better private insurance marketplace. These waivers will also include fewer mandates that balloon insurance costs.

The Senate proposal to freeze Medicaid expansion is a prudent step to help focus Medicaid services on the needy. Expansion enrollment has drastically exceeded expectations and an enrollment freeze will enable the state to refocus the program. 

One item ripe for Conference Committee consideration is to ensure that the Controlling Board guidelines on Medicaid spending are robust enough to ensure the Administration must obtain approval before spending on the expansion.

Criminal Justice Reform

Governor Kasich’s budget included an expansion of the Department of Rehabilitation and Correction Targeted Community Alternatives to Prison (TCAP) program, which provides grants to counties to rehabilitate low-level, non-violent offenders locally, a more effective approach than prison at a fraction of the cost. Expansion of TCAP would provide more resources to communities as they deal with the opioid epidemic, increase public safety, and save taxpayer dollars.

The Senate version only binds Ohio’s 10 most populous counties to the TCAP program, with the remaining 77 counties participating on a voluntary basis. We are confident, that once the benefits of TCAP are realized, more counties will want to participate.

Agency Review Process

The Buckeye Institute is pleased to see that the Senate has added a provision to the budget that will submit state agencies to efficiency reviews and that the Senate has made it clear they intend for occupational licensing requirements to be a part of that review. 

These provisions will ensure state agencies impose the ‘least restrictive’ regulatory requirement when dealing with occupational licenses, which will help alleviate unnecessary burdens on thousands of Ohioans by making it easier for them to cut through state red tape and start working more quickly. 

The inclusion of occupational licensing requirement in these reviews, begin to address issues we discussed in our report Forbidden to Succeed: How Licensure Laws Hold Ohioans Back.

Conclusion

Now the Conference Committee will begin its work and they should build on the fairly successful efforts made to restrain spending and reform the key driver of increased spending – Medicaid. The committee should also retain sound tax provisions including the municipal income tax reform, criminal justice reforms including TCAP, and retain the administrative agency review process including the new definition regarding least restrictive regulations.

By doing these things, with the addition of more cuts, the committee could further improve an already solid budget.