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The Buckeye Institute: Strategic Use of Ohio’s Rainy Day Fund, Along with Budget Cuts, Would Avoid Tax Increases

Apr 15, 2020

Columbus, OH – In a new policy memo, Policy Solutions for the Pandemic: Using the Rainy Day Fund to Fight COVID-19’s Impact (see full text below or download a PDF) released Wednesday, The Buckeye Institute urged policymakers to strategically use Ohio’s rainy day fund to weather the invisible COVID-19 storm, but only after eliminating unnecessary state spending and answering Governor Mike DeWine’s call to cut government budgets by at least 20 percent.

“The COVID-19 crisis has required state lawmakers to take swift, dramatic action to secure Ohio’s public health and economy. These actions have strained Ohio’s budget and may tempt  policymakers to raise taxes to bolster depleted government coffers,” said Lukas Spitzwieser, economic policy analyst with The Buckeye Institute’s Economic Research Center. “Instead of raising taxes—which will strain cash-strapped businesses, workers, and families even further—or imperiling health care workers with across-the-board spending cuts, Ohio should surgically cut unnecessary spending and rely on the rainy day fund to balance the budget.”

Ohio has adopted many of Buckeye’s policy recommendations to boost the state’s health care system and support Ohio’s workers, small businesses, and economy including:

  • Increased telehealth access and monitoring;
  • Extended universal recognition of out-of-state medical licenses to doctors and physician assistants;
  • Permitted pharmacists to test for COVID-19;
  • Enlisted medical and nursing students to support doctors and nurses fighting COVID-19;
  • Begun to eliminate unnecessary budget commitments;
  • Instituted a hiring freeze in state government; and
  • Allowed establishments with an existing liquor permit to sell and deliver alcohol on carryout menus.

This new policy memo builds on the recommendations The Buckeye Institute made in Policy Solutions for the Pandemic: How Ohio Can Fight the Impact of Coronavirus, which outlined immediate actions policymakers can take to ensure Ohio and the country is ready to fight and recover from the pandemic. The Buckeye Institute’s recommendations can be found at: www.BuckeyeInstitute.org/Policy-Solutions-for-the-Pandemic.

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Policy Solutions for the Pandemic
Using the Rainy Day Fund to Fight COVID-19’s Impact

By Lukas Spitzwieser 
April 15, 2020

The Buckeye Institute’s Recommendation
To address the COVID-19 crisis, Ohio should eliminate unnecessary state spending and then strategically use its Budget Stabilization Fund—commonly known as the rainy day fund—after first answering Governor DeWine’s call to cut government budgets by at least 20 percent.

Background
The COVID-19 crisis has required state lawmakers to take swift, dramatic action to secure Ohio’s public health and economy. That action, however, will strain Ohio’s budget and tempt policymakers to raise state and local taxes to bolster depleted government coffers. Policymakers should resist that temptation.

Government spending will increase as Ohio consumes more public services, addresses a record number of unemployment claims, and pays for rising Medicaid expenses. And the spending increase comes just as tax revenues are declining as a result of businesses temporarily closing, families sheltering in place, and furloughed workers paying little to no income tax. 

Under the state constitution, Ohio cannot spend more than its revenues. Instead of raising taxes that will strain cash-strapped businesses, workers, and families even further, or imperiling health care workers with across-the-board spending cuts, Ohio should surgically cut unnecessary spending and rely on the Budget Stabilization Fund to balance the budget. After all, rainy day funds are made for just such “rainy days.”

Past recessions proved the importance of a solid rainy day fund during an economic crisis. During the early 2000s recession, Ohio drained 80 percent of the fund’s original $1 billion within two years. The Great Recession in 2008 famously forced then-Governor Strickland to use all but $0.89 of the state’s rainy day fund. Fortunately, then-Governor Kasich wisely replenished the fund (against widespread opposition), a sound fiscal decision that has given Ohio a lifeline during the current crisis. Because of the rainy day fund, Ohio policymakers have more financial firepower to withstand the fiscal assault brought on by COVID-19 and should not resort to tax increases or rely wholly on federal loans to cover state expenses. That weapon, however, should only be used after Ohio has cut unnecessary spending and fulfilled Governor DeWine’s request to cut government budgets by at least 20 percent.

Conclusion
Rainy day funds are saved for rainy days. Rather than raising taxes, rather than indiscriminately cutting critical programs, and before public spending spirals out of control, Ohio should reprioritize and reduce government budgets, and then turn to the rainy day fund to weather this invisible storm.

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