Ohio revenues on the rise, but budget stays flat

6/3/2005

COLUMBUS - Ohio tax collections spiked nearly 24 percent above projections in May and are up 3.7 percent 11 months into the fiscal year, but Gov. Bob Taft's budget prognosticators aren't ready yet to raise revenue projections for the next two years.

A joint House-Senate conference committee is expected to meet as soon as next week to hammer out a compromise between their differing versions of a $51 billion, two-year budget to take effect July 1.

Lawmakers hope they'll receive rosier predictions, which could translate into more tax cuts or restored funding for areas targeted for cuts.

"While 2005 appears to be higher than previous years and our estimates, economists are more cautious over the economy than they were when we proposed our budget [in February]," said Assistant Budget Director Tim Keen. "Oil prices are above $50 a barrel. There's continued softness in employment growth nationally and in Ohio. Interest rates continue to be raised."

Spending levels are expected to be on target with projections. Personal income tax and corporate franchise tax collections are 7.6 percent and 15.5 percent above projections respectively for the year.

"The personal income tax and corporate franchise tax were up, but when you look at the combined sales tax, it's below the estimate for the year," said Mr. Keen. "That sluggish performance throughout all of this is a slight cause of concern."

The budget passed by the Senate shortly after midnight yesterday would collect about $1 billion less in taxes over the biennium thanks to planned reductions in personal income taxes and a shifting of business taxes away from profits and plant investments toward gross sales.

As a result, 196 of the state's 612 school districts would receive no additional state aid over the next two years; counties, cities, and libraries would see their support slashed; 25,000 working poor parents would lose Medicaid health coverage, and 15,000 extremely poor, medication-dependent Ohioans would lose government-supplied prescription drugs.

Schools will be watching any revised revenue projections closely. Total state spending for basic aid is set to increase an average of 2 percent over the next two years.

The Republican-controlled Senate decided to slow down some of its planned changes in the basic-aid distribution formula. The plan would gradually implement the changes and phase out over two years rather than immediately eliminate an adjustment that compensates some schools for a higher cost of doing business.

"The Republican budget picks winners and losers," said Sen. Teresa Fedor (D., Toledo), a former teacher, during debate on the budget. "Flat funding in an inflationary economy equals a cut, pure and simple."

The slowdown in implementing the changes worked to the benefit of Fostoria City Schools, divided among Wood, Hancock, and Seneca counties. Its 2005-06 state aid would jump 10.2 percent, one of the largest increases in the state. That compares to 7.8 percent under the earlier Senate plan that would have implemented the formula changes more rapidly.

As the formula changes advance in the second year, Fostoria's increase would slide to 1.8 percent.

Treasurer Jane Fruth attributes much of the increase to the restoration of the cost-of-doing-business factor and to parity aid boosting poorer districts.

"The most dangerous thing in the budget is the reduction of the tangible personal property taxes [on businesses]," she said. "We are 29th out of 612 school districts in percentage of impact. We receive $2 million from personal property taxes."

The tax on business machinery, equipment, and other investments is slated to be gradually replaced along with the corporate franchise tax with a new tax on gross receipts. The budget does not spell out a permanent funding replacement beyond the five-year transition period.

The Senate plan adopted yesterday reversed Toledo Public Schools' fortunes. The district would receive increases of 2.5 and 4.3 percent over the next two years, instead of 4.9 and 2.6 percent respectively under the earlier, more rapidly paced version.

The budget opens the door for the first time for 18,000 students in struggling schools statewide to receive vouchers to attend private or religious schools of their choice and expands Cleveland's voucher program.

Sen. Joy Padgett (R., Coshocton), chairman of the Senate Education Committee and also a former teacher, noted that students in the statewide program would be eligible for vouchers only after having spent three consecutive years in a failing school.

"How many years would you expect a student to have to go to a school in academic emergency before we give them an opportunity to go somewhere where real learning is taking place?" she asked.

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.