Blue Skies and Bottom Lines

Kasich's Blue Book Build Likely to undergo a remodel

by Glynn Keno for 3rd Rail Politics

 

It's like clockwork.  A new session begins in January of an odd-numbered year, and one of the first responsibilities the men and women of the General Assembly are faced with is to begin work on the Rube Goldberg-esque machine (Ohio's biennial budget proposal) that produces an in-balance fiscal bottom line outcome by June 30th.  The first domino is pushed over when the sitting Governor submits his Executive budget proposal by the end of January.  That can be found here.

 

This time, the machine is being asked to perform many more things than usual and has a large number of moving parts.  Tim Keen, an adept fiscal manager and the director of the Office of Budget and Management, has done his best to engineer the convoluted contraption, but is faced with some unique difficulties in this iteration.

 

As Governor John Kasich cannot run for re-election in two years' time, this budget submission is his final hurrah, one of his last best means of cementing a leadership legacy.  Given this, and that there are a number of key policy issues where the Governor has either overruled or ignored the lawmakers, it is looking like the action of this machine may not run as smoothly as the Governor or Budget Director would like, nor produce exactly their desired outcome.  

 

In the budget Blue Book, Kasich describes his creation as “conservative, responsible priorities that work to hold down the growth of state spending in ways that make government leaner, more efficient and more responsive to the needs of our citizens.”  This proposal “holds down” spending growth (which has never been considered to be actually a conservative act, you know, growing government spending) to a 6.2% overall increase in the biennium (overall $144.3 billion total budget, all funds).  As a matter of fact, other than the first budget proposal by Kasich as a new chief Executive in 2011, every budget he has since proposed has grown spending and came in higher than former Governor Ted Strickland's highest spending budget.  This one is no exception to that rule, it appears.

 

So what are some of the moving parts in this proposal that may be removed, moved or have their shape changed by the 132 people who have to go back into the local communities in their districts to defend the final product?  In no particular order of importance:

 

1.  Smart Technology Corridor—this is a proposal that sounds promising, and has support of many of the key players around Capitol Square, including a number of local governments that may reap benefits from it.  It is one of the Governor's hallmark programs (as is evidenced by the press release put out by his office touting the support for this initiative).  However, the devils may be in the details, and the idea of driverless semi trucks and sensors buried in the highways which could be the doorway to implementing highway use taxes in the future might not sit well with the voting public or legislators.

 

2.  School spending—The Governor is not, unlike his predecessors, trying to claim the title of “Education Governor”, proposing only a modest $200 million increase in each year of the biennium, with most school districts facing either flat funding off the previous budgets or an average 1% increase.  Districts that have lost enrollment may face up to 5% cut.  The Legislature will likely restructure this proposal significantly.

 

3.  Tax increases—Kasich proposes more reductions to the state income tax specifically reducing the number of tax brackets and expanding the top line in each bracket, which can be a driver of economic stimulus and growth,  in the midst of an environment that he has been warning legislators over the last two months is headed for recession.   In order to offset the revenue loss however, he is proposing increasing other taxes, specifically by raising the state share of the sales tax to 6.25 %; however, such increases tend to have bigger negative impacts in rural and urban poor areas, where much of the economic growth doesn't occur.

 

Governor Kasich is also back again with another call to impose severance taxes on the oil and gas drilling industry:  6.5% increase at wellhead operation and another 4.5% increase in processing operations.  The legislature has turned down this proposal before, and likely will again, as these taxes are by and large passed on to the end user, which would result in an 11% or better increase in the cost of fuel.  Raising the cost of doing business in the fuel industry means ultimately an increase in prices of commodities to the consumer.   The blue book also proposes another likely loser for the Governor's budget: expanding taxes on lobbying, plastic surgery, etc., which has been tried before without success (there are enough skillful lobbyists in Columbus to make sure lobbying is not a taxable activity, it seems.)

 

4.  Medicaid, which is the single largest program in the entire budget, would see an 8.9% overall growth level, likely in response to the larger-than-projected numbers of new enrollees into the program. The Governor's proposal would add “personal responsibility” to offset the costs: a $20/month fee for Medicaid recipients who are above the poverty line threshold (approximately 150,000 recipients), and who aren't pregnant women or have dependent children.  With an overall spend of $56.9 billion, it's very unclear how much “personal responsibility” it will take if Congress and the Trump Administration make significant changes to the Medicaid expansion pushed by former President Obama and excitedly entered into by John Kasich with a procedural sleight of hand through the Controlling Board process.

 

5.  As usual, in any budget proposal there are always some line items or moves that make observers incredulous of the proposal.  This Executive offering has a couple of real head-scratchers.  First off, the proposed shifting of certain spending to the “all funds”  budget and off of the GRF ledger (overall GRF biennial nets at a 3.4% reduction in spending vs. FY17 estimates), while the overall budget grows spending by 6.2%, feels like the same parlor tricks used in Congress:  the budget proposal looks balanced, but leaves a time bomb to go off on a future Governor and Assembly when the payments come due or outside dollars disappear.

 

More curious is the line item in the blue book that proposes to repeal the campaign contribution credit line of Ohio's income tax forms.  This is a provision to allow Ohio taxpayers to receive a $50 per person per year credit for contributing to a state-level campaign (legislative or statewide offices).  This is a provision that is used mainly by conservatives, non-incumbents and party “outsiders” to raise needed funds from grassroots supporters to try to be competitive.  This smacks more of political machinations than good fiscal management, as this is major change for a paltry $3.6 million per year in projected retained tax revenue for the state's coffers.  

 

It's not very hard to guess that there will have to be some significant explaining to do by the Administration to the members of the Assembly who regularly send out fund-raising appeals encouraging their base to use this provision to help both the candidate and their final tax bill at the same time.    There is much more that can (and will) be said about particulars of the Governor's “swan song” budget as the process marches along.