Kasich’s budget must start the healing

2/3/2013

The state budget that Gov. John Kasich is to propose on Monday will largely determine how Ohio will tax its citizens and spend their money for the next two years. It also will set the tone for the governor’s expected re-election campaign in 2014.

Mr. Kasich’s new budget could extend health-care coverage to nearly a half-million working-poor Ohioans. It could finally create a fairer, more effective way of paying for public schools — a duty the state has neglected for decades.

It could use a rainy-day fund that the governor estimates may soon reach $1 billion to start to reverse the damage done by his first budget, which has slashed billions in aid to local governments, education, and essential human services. It could prepare Ohio to deal adequately with the risks as well as the benefits of the state’s anticipated boom in oil and natural-gas drilling.

Or the budget could skew the state’s tax system even more in favor of the richest Ohioans and corporations, at the expense of middle-class, working-class, and low-income families who continue to endure the Great Recession. It could maintain wasteful, costly special-interest loopholes that have no place in the tax code.

Or maybe Governor Kasich will try to do a little bit of all these things. Whatever he does is likely to give potential election opponents plenty to talk about next year.

The biggest immediate budget issue is whether Mr. Kasich will expand the state’s Medicaid program of health insurance to cover more low-income Ohioans. He should.

The Affordable Care Act seeks to insure more Americans by encouraging states to broaden Medicaid eligibility. Starting next year, Washington initially will pick up the full tab for the expansion. Even in 2020 and thereafter, when the federal share will drop to 90 percent, it still will be a good deal for the state.

A new study by Ohio State and the Urban Institute projects that by 2022, Medicaid expansion would cover 456,000 more Ohioans. That would do a lot to relieve hospitals of their burden of caring for uninsured patients. Those costs largely get shifted to people who have health insurance.

The study estimates that a Medicaid expansion would bring Ohio more than $1.8 billion in higher sales tax and health insurance tax revenue from 2014 to 2022. There would be another $1 billion-plus in revenue from increased economic activity and rebates to the state from prescription drug makers. And expansion would create as many as 32,000 jobs.

These advantages are too great to sacrifice to partisanship or myopic ideology. Whether or not you like Obamacare, Ohio needs to capture the dollars it provides, rather than watch them escape to other states.

Governor Kasich’s proposed budget also will include the school finance plan he introduced late last week. Four times since 1997, the Ohio Supreme Court has ruled that our system of school funding violates the state constitution, because of the vast disparities in per-student spending it allows between wealthy and poor school districts.

That inequity is the product of Ohio’s overreliance on local property taxes to pay for schools. Property-rich districts can raise lots of money at lower tax rates to spend on their schools, while districts with depressed local tax bases must ask struggling taxpayers for higher millages that yield less revenue. And as Toledoans did last November, those taxpayers often refuse.

The only way to fix the broken system and provide greater equity in school spending is to shift the funding burden from the local property tax to the state.

Yet Mr. Kasich’s first two-year budget went in the opposite direction, slashing aid to public schools by $1.3 billion to $1.8 billion, depending on whose calculations you believe.

The governor asserts that his new budget will increase state aid to schools by $1.2 billion over two years, and that the basic aid formula he proposes will give all Ohio districts access to the same level of funding that the wealthiest systems now enjoy. He says he also wants to give special aid to districts with large numbers of low-income taxpayers, poor and disabled students, and children who aren’t proficient in English.

It sounds good. At the same time, though, the governor proposes more funding for private-school vouchers and for-profit charter schools, many of them of dubious quality and business practices.

And he warns traditional public schools, which will continue to educate the vast majority of Ohio children, that their long-term funding is not assured. How such mixed messages get resolved will determine the plan’s success.

On the tax side, Governor Kasich is likely to revive his proposal to raise the state severance tax on oil and gas production. The revenue from that tax hike would pay for a cut in Ohio’s personal income tax.

That policy gets it half right. You even can argue that the proposed 4-percent severance tax rate isn’t high enough, considering what other states levy and given the added costs that hydraulic fracturing will impose on the state for such things as environmental and public-health monitoring and road maintenance.

But there’s no need for another across-the-board income tax cut now. Gavin DeVore Leonard, state director of One Ohio Now, a coalition of liberal advocacy groups, unions, and health and human-service lobbies, notes that Ohio already has cut its income tax 21 percent since 2005. That and other tax changes have cost the state $2.5 billion in annual revenue.

Ohio’s wealthiest 1 percent have gotten an average annual state tax cut of more than $9,500, while the bottom 20 percent of taxpayers got an average $19 a year in tax relief, he says. Since 2005, Mr. Leonard adds, Ohio has lost 4.4 percent of its jobs.

“The promised jobs and growth have not materialized” from the tax cuts, Mr. Leonard told me last week. “Why would we do that again? It can’t become the new normal that we think it’s a win when we don’t go backwards.”

The severance/income tax swap the governor proposed last year would have given $42 a year to the typical middle-income Ohio family, while bestowing thousands of dollars annually on the richest taxpayers. It would be far better to apply revenue from a higher severance tax to rebuilding the vital public services that the recession has battered.

Ohioans need to debate how state government can contribute best to creating jobs, educating our young people, making our communities safe, and keeping our air and water clean. We’ve taken the cuts. Now it’s time to heal.

Whatever it includes, and whatever it leaves out, Governor Kasich’s new budget will offer a useful foundation for that dialogue.

David Kushma is editor of The Blade.

Contact him at: dkushma@theblade.com