The Buckeye Institute: Ohio’s Budget Should Fund Priorities in a Time of Pandemic RecoveryApr 15, 2021
Columbus, OH – On Thursday, The Buckeye Institute testified (see full text below or download a PDF) before the Ohio House Finance Committee on the policies in House Bill 110, Ohio’s biennial operating budget, which accounts for a little less than half of state spending.
In his testimony, Greg R. Lawson, research fellow at The Buckeye Institute, noted that the COVID-19 pandemic has “created new challenges and new opportunities” for policymakers in crafting an operating budget that balances the “public’s health and safety, the economic needs of struggling small businesses, and maintain[s] a sustainable long-term budget that does not hinder growth...”
As outlined in Buckeye’s Piglet Book, Lawson urged lawmakers to “[a]dher[e] to fundamental economic principles, re-prioritiz[e] spending, curb spending growth rates, and trim government waste during this biennial budget process.” He also warned lawmakers to “resist the temptation to create long-term programs with one-time federal funding,” saying, “As The Buckeye Institute recently explained in How to Spend Federal Stimulus Money Wisely, there are wise ways and wrong ways to spend excess federal funding.”
Beyond prudent spending and cutting wasteful and unnecessary spending, Lawson also outlined how policymakers can address long-term policy issues in the budget. These areas include:
- Adopting education savings accounts to create educational funding flexibility for families to meet the individual needs of their students, many of whom are still studying at home;
- Implementing further tax reforms by closing more than $9 billion in tax loopholes to facilitate an across-the-board personal income tax rate reduction;
- Expanding access to broadband service—which has become all-but essential for 21st century life—to unserved areas of Ohio;
- Reforming higher education funding to help students get the skills they need to secure gainful employment quickly and pay down student loans; and
- Expanding Ohio’s successful Targeted Community Alternatives to Prison program to all 88 counties, which will reduce prison overcrowding, save taxpayer dollars on incarceration, and help low-level, non-violent offenders get the treatment and rehabilitation they need to re-enter society successfully.
In closing, Lawson pointed out that the biennial budget process can “ensure that Ohio makes a solid economic recovery from the COVID-19 pandemic without jeopardizing its future growth prospects,” noting that “The current House version of the budget makes progress…but more can and should be done to improve the bill and help Ohio recover from the pandemic.”
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Funding Ohio’s Priorities in a Time of Pandemic Recovery
Interested Party Testimony
Ohio House Finance Committee
House Bill 110
Greg R. Lawson, Research Fellow
The Buckeye Institute
April 15, 2021
As Prepared for Delivery
Chair Oelslager, Vice Chair Plummer, Ranking Member Crawley, and members of the Committee, thank you for the opportunity to testify today regarding House Bill 110 and Ohio’s operating budget.
My name is Greg R. Lawson. I am the research fellow at The Buckeye Institute, an independent research and educational institution—a think tank—whose mission is to advance free-market public policy in the states.
The COVID-19 pandemic has created new challenges and new opportunities for you in drafting the state’s biennial operating budget. Balancing the public’s health and safety, the economic needs of struggling small businesses, and maintaining a sustainable long-term budget that does not hinder growth will be no small feat. But this difficult task can be accomplished even while adequately funding critical priorities such as vaccine distribution and maintaining a sound public infrastructure. Adhering to fundamental economic principles, re-prioritizing spending, curbing spending growth rates, and trimming government waste during this biennial budget process, will help fight the urge to turn one-time pandemic-recovery spending and money from Washington into ongoing, unsustainable spending obligations.
A well-drafted, sustainable budget can also address some important long-standing issues, including empowering families to get the individualized educational resources they need with flexible K-12 funding; making Ohio’s tax code more competitive; investing in 21st century infrastructure; aligning higher education funding with educational, employment, and workforce needs; and targeting criminal justice resources to better deal with low-level offenders.
Governor Mike DeWine deserves credit for proposing a budget that protects taxpayers, makes strategic use of one-time spending on public infrastructure, and helps small businesses struggling to survive the economic fallout of the pandemic. The Ohio House of Representatives has built on the governor’s budget by proposing a small but positive tax cut, trimming some wasteful spending, and expanding the successful Targeted Community Alternatives to Prison (T-CAP) program. But more can be done, including more stringent spending and enhanced school choice initiatives.
The current version of House Bill 110 includes appropriations of $162.6 billion in all funds over the biennium and $74.7 billion in general revenue funds (GRF). Approximately half of the proposed GRF increase stems from the state picking up a larger share of Medicaid costs in Fiscal Year 2023 as the temporary federal Medicaid resources made available during the COVID-19 pandemic wind down. But as Medicaid Director Maureen Corcoran has indicated, eligibility redeterminations won’t really happen until next year and the overall caseload will likely remain above the pre-pandemic number through the biennium. And as with other recent Ohio budgets, more than two-thirds of state-only spending will pay for K-12 education, Medicaid, and criminal justice.
State tax revenues have remained relatively strong despite the pandemic, providing adequate resources for ongoing, regular and non-COVID-19 related expenses. Ohio can also anticipate receiving around $17 billion in federal funds under the latest COVID-19 relief package, which will tempt the General Assembly to create unsustainable spending programs that will outlast the initial federal funding. That temptation must be resisted and the federal dollars strategically spent.
The Buckeye Institute’s most recent Piglet Book urges state policymakers to follow sound spending principles, remain focused on providing core government services, and supporting businesses recovering from the pandemic without establishing an unsustainable baseline for future spending that will inevitably require tax increases.
How to Spend in a Pandemic Recovery
Prioritize Government Spending
During the pandemic, policymakers should prioritize government spending to provide core government services and enhance public health and safety. Such priorities include procuring and distributing COVID-19 vaccines, and maintaining sound public infrastructures. Spending on programs and projects that fall beyond these immediate priorities, such as the expensive and unnecessary $50 million Ohio promotional campaign, should be eliminated or delayed.
Until the pandemic subsides, Ohio does not need the $50 million Promoting Ohio marketing campaign to attract people from California and New York. Opening businesses and promoting safe, healthy environments, while maintaining an affordable, high standard of living will attract those looking to escape high-tax states. This program’s funding can be redirected to enhance public health and safety programs.
Similarly, with so many businesses struggling to survive the pandemic, the House has taken some positive steps by placing additional guardrails on H2Ohio. Governor Mike DeWine and the General Assembly rightly seek to ensure clean water in Lake Erie and protect against toxic algae blooms, but in difficult times like these when Ohio families have sacrificed and postponed even worthwhile objectives—their government should, too. As critical as H2Ohio may be, the initiative should be scaled-back temporarily. Although the House took a partial step in this direction by compelling the administration to seek Controlling Board authorization before transferring unencumbered GRF into H2Ohio, the better solution would scale-back the program until Ohio has fully emerged from the pandemic.
Maintain a Sustainable Budget
With federal financial aid flowing from Washington, state policymakers must resist the temptation to create long-term programs with one-time federal funding. As The Buckeye Institute recently explained in How to Spend Federal Stimulus Money Wisely, there are wise ways and wrong ways to spend excess federal funding. Extravagant public spending—even when governments can afford it—establishes higher budget baselines and creates the unrealistic expectation that government largesse will continue indefinitely. Those higher baselines and expectations inevitably lead to painful spending cuts and economically harmful tax increases. All of the funding coming from Washington should have separate budget line items to ensure public transparency and curb co-mingling of funds that might later justify higher permanent spending. For all of these reasons, the creation of the Joint Legislative Oversight and Review Committee of Federal COVID Relief is a smart move. The joint committee can rigorously oversee how these dollars are spent to maximize Ohio’s post-COVID recovery while ensuring that these one-time funds do not tie the fiscal hands of future General Assemblies.
Peg Public Spending Growth Rates to Inflation
Where legally permissible, non-COVID related spending growth should track inflation and population growth rates. The Congressional Budget Office’s most recent 10-year economic forecast projects inflation (as defined in the Consumer Price Index) of 1.9 percent in 2021 and 2.2 percent in 2022. Ohio’s population growth remains negligible, so actual inflation may prove far below Ohio’s statutory appropriation limit that allows for 3.5 percent growth in GRF spending each fiscal year.
Eliminate Corporate Welfare
Governments should not pick economic winners and losers by redistributing taxpayer dollars to their favorite companies. This includes industry-specific state-backed marketing campaigns—like the one for Ohio wines funded by a five cents per gallon tax on consumers. Winemakers can find ways to market their own products without using the state’s taxing authority to charge consumers more for it.
End Government Philanthropy and Advocacy
Governments are poor philanthropists. Philanthropists and charities—not politicians or bureaucrats—should direct voluntary contributions to support worthy programs and causes like the Ohio Arts Council, for example. When governments attempt “philanthropy” to support politically preferred causes using money that taxpayers are compelled to give, altruism turns to political advocacy and crowds out the voluntary efforts of the people, leaving them with less money to donate.
Government funding through grants and direct aid should only flow through a transparent, competitive process in which all eligible entities may compete. Earmarks subvert that process and erode the public’s faith in good government. Budget line items for Ohio History Connection programs and subsidies for specified universities beyond the State Share of Instruction subsidy should be eliminated. And the House’s budget line-item giving a $150,000 grant for a “Uniform to Unions” to the Ohio State Building and Construction Trades Council apprenticeship program should be removed. Apprenticeships are worthwhile, but direct earmarks—even small ones—to particular groups are the wrong way to support them. Likewise, the House’s earmarks for specific university programs dealing with public affairs can and should be supported by other higher education line items.
Addressing Long-Term Budget and Policy Issues with Innovative Spending
Fund Students First
K-12 education remains one of the largest line items in Ohio’s biennial budget. Unfortunately, the state continues to fund public school districts rather than the students the schools are asked to teach. Taking a student-first approach to funding education is long overdue. And just as families have taken a harder look at their educational preferences, priorities, and alternatives to the local public school in the wake of the pandemic, so should the state.
Public school districts moved to online and hybrid learning environments to cope with COVID-19 concerns, but as the pandemic persisted families were compelled to confront technical difficulties, equipment failures, and the unexpected need for expensive tutoring. The most vulnerable groups of students, including minorities and those from lower income households, have suffered significant academic setbacks.
So now is the perfect time for Ohio to move beyond its one-size-fits-all education system that focuses on school districts before students. The state should adopt education savings accounts—or ESAs—to create educational funding flexibility for families to meet the individual needs of their students, many of whom are still studying at home. As The Buckeye Institute recently explained, ESAs can help close some of the opportunity gaps and make the transition to new curricula easier and less expensive for families.
Adequate funding in the current budget can be repurposed to support a meaningful ESA program without harming traditional public schools or the conceptual school funding approach in House Bill 1. Governor DeWine’s budget, for example, includes a $1.1 billion line item for student wellness and success—a $425 million increase over the previous budget. Using that increase instead to pay for school choice programs, including ESAs and EdChoice income-based scholarships, could help provide families with educational funds and resources they need without dramatically increasing the state’s education budget. And House Bill 1’s direct funding of charter schools and voucher programs already suggests an effective ESA funding mechanism going forward.
Ohio tax revenues are coming in strong and ahead of earlier estimates, according to the latest Office of Budget and Management revenue summaries. Sales and use taxes are currently six percent ahead and income tax is 2.5 percent ahead. The proposed two percent income tax reduction in the House version is yet another small step forward on broader tax reform and should be commended. Given the positive state of revenues, the General Assembly can afford to be even bolder and make even deeper reductions. More than $9 billion in tax expenditures littered throughout the state tax code could be eliminated to facilitate an across-the-board personal income tax rate reduction as well. Pursuing even these modest steps will help make Ohio more economically competitive by reducing the combined state and local tax rate.
The General Assembly should not be intimidated by the legally questionable and troubling condition that Congress added to the new federal COVID relief plan, which appears to restrict state authority to cut state taxes. State Attorney General Dave Yost has wisely challenged this unconstitutional provision in federal court, asking the court for an injunction. The Buckeye Institute has filed an amicus brief supporting Ohio’s case.
21st Century Infrastructure
Broadband has become all-but essential for 21st century life. Schools, businesses, households, and hospitals rely heavily on high-speed internet access. The COVID-19 pandemic has compounded that reliance with expanded use of telehealth, hybrid and online learning, web-based e-commerce, and telework all depending on consumer access to reliable broadband service.
As Ohio deploys broadband as part of the state’s technological infrastructure, policymakers should keep three things in mind. First, given the billions of private investment dollars already at work, Ohio should utilize public-private partnerships in the field and avoid government-owned broadband networks that can cost unsuspecting taxpayers dearly. Second, the state’s new broadband funding should be spent in areas that are truly unserved and not in areas that already have access. And finally, with federal funding flowing into state coffers, Ohio must ensure that procedural safeguards are in place to protect taxpayers. Helping service providers reach unserved areas makes sense, double-dipping for redundant broadband expansion does not.
Ohio’s higher education policy should continue to strive toward helping students get the skills they need to secure gainful employment quickly and pay down student loans. Community colleges can play a key role in accomplishing both of these goals. First, they provide workforce credentialing through direct training and hiring programs with businesses and industry partnerships. And second, they are generally less expensive than four-year universities, with three credit hours from Edison State, for example, costing students less than half of what the University of Toledo and The Ohio State University charge, and one-tenth of what the University of Dayton charges. Such reduced rates help students seeking a four-year college degree to earn transferable credits at a lower cost.
But community colleges receive less than $500 million of the approximately $2 billion in the State Share of Instruction line item—a line item that does not transparently delineate its funding for higher education. Such a significant line item bearing such a significant price tag should be more transparent and the House, to its credit, separated the amounts allocated for community colleges from funding for four-year schools.
Additionally, access to Ohio College Opportunity Grants (OCOG) for low-income students attending community colleges is practically non-existent, despite the success of community colleges in helping students gain in-demand job skills. This lack of access is due to Ohio’s “Pell-first” policy. This policy restricts OCOGs from being awarded to students when a Pell Grant covers anything beyond the cost of tuition. And because community college tuition is so affordable, students are nearly always ineligible for OCOGs. Unfortunately, this Pell-first requirement ignores the additional costs that often keep lower-income students from pursuing associate degrees. Additionally, OCOGs are unavailable to students earning required job training certificates for jobs such as automobile repair, information technology, supply chain management, and welding. And Pell Grants cannot be used to cover the costs of these types of certificates. Senator Rob Portman is working to fix this problem at the national level, and the General Assembly should follow his lead and eliminate the Pell-first requirement and open the OCOG program to students earning job training certificates.
Criminal Justice Reforms
Total state spending on criminal justice represents the third largest portion of the budget. The House has wisely chosen to continue pursuing policies like the successful T-CAP program. T-CAP is designed to keep low-level non-violent criminal offenders from unnecessarily spending time in Ohio’s overcrowded prisons. T-CAP provides participating counties with Ohio Department of Rehabilitation and Correction grant funding if the county agrees not to send fifth-degree felony offenders to prison and instead rehabilitates the offenders in the community. This worthwhile effort to keep low-level drug offenders out of state prisons began as a pilot program in 2018, currently has 60 of Ohio’s 88 counties participating. Over time, programs like T-CAP will save the state money on prisons and the costs of recidivism.
The biennial budget process can ensure that Ohio makes a solid economic recovery from the COVID-19 pandemic without jeopardizing its future growth prospects. But policymakers must adhere to sound spending principles and resist the understandable temptation to create long-term programs with short-term federal funding. Focusing on providing core government services, curbing public spending growth rates, making the tax code more competitive, and eliminating earmarks and corporate welfare will keep Ohio on course. And now is the time to pursue several key policy initiatives, including flexible K-12 funding for families; investing in expanding broadband access throughout the state; and reducing recidivism through T-CAP and other community-based criminal justice reforms. The current House version of the budget makes progress in several of these areas, but more can and should be done to improve the bill and help Ohio recover from the pandemic.
Thank you for the opportunity to testify. I would be happy to answer any questions that the Committee may have.
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