Strickland spells out budget; plan ends fuel-sale exemption, shifts aid

3/16/2007

COLUMBUS A day after promising to give senior citizens a major property tax cut, expand health care for children, and boost funding for education, Gov. Ted Strickland yesterday explained how he plans to pay the bill.

His first budget plan would close tax exemptions benefiting the petroleum industry and Ohioans who cross state lines to buy cigarettes. The budget plan also would sell bonds to lock in an estimated lump-sum payment of $5 billion from the state s long-term settlement with major tobacco companies.

The $52.9 billion, two-year budget also picks and chooses, cutting funding to 16 agencies and departments to help finance increases in other programs.

The plan uses previously unspent federal welfare dollars and counts on federal help that has yet to be secured.

Total spending would drop by 1.6 percent during the first year of the biennium, in part because of continuing tax cuts associated with an overhaul of Ohio s tax system in 2005 that Mr. Strickland has said he will allow to run its course.

Spending would rebound by 6 percent in the second year.

There is belt-tightening ahead and it s not a pleasant thing to do, especially when we re dealing with shortfalls, he said during Wednesday s State-of-the-State Address. And so we face a choice.

We can take the easy route, he said. We can continue divvying up our shrinking resources and spreading them around so that everybody is mildly satisfied while nothing is actually accomplished. Or we can make tough choices.

Mr. Strickland s office said yesterday it sees the decision to allow a current exemption enjoyed by petroleum wholesalers and retailers to expire as scheduled on June 30 as sticking with the tax reform game plan. The state s tax on business gross receipts would be extended to revenue generated by the sale of gasoline and other motor fuels.

Mr. Strickland plans to use the roughly $200 million generated over the biennium to help compensate schools for the loss of revenue from another business tax being phased out.

House Republicans, however, said the exemption was just a stopgap measure until an alternative taxation method could be created that would avoid the pyramiding effect of taxing gasoline every time it changes hands between the refinery and the fuel tank.

If the exemption should be lifted, they said the money should go into highway and bridge projects, arguing that the Ohio Constitution requires revenue generated from gasoline sales to be spent on transportation.

The second tax loophole targeted for elimination is a $300 monthly cigarette tax exemption for people who return to Ohio with cigarettes bought in other states for personal use. Ohio expects to generate about $25 million a year.

This is for those people who go into Kentucky to buy cigarettes, and fill up their trunks with $300 worth of cigarettes and soda, and drive back across the bridge into Ohio, said Strickland budget Director Pari Sabety. This has to do with supporting small retailers in our state.

Rep. Bill Seitz (R., Cincinnati) said the higher exemption for cigarette imports was one of the compromises made during the 2005 tax reform debate that included a sizable hike in the cigarette tax to $1.25 per pack.

If you say you embrace the tax reforms of 2005, you cannot accept tax increases and get rid of tax decreases, he said. And it s not a sound idea. You re not going to raise any revenue. Are you going to have border guards to catch individuals coming in from Kentucky and West Virginia?

The budget now goes to the state Senate, which has until the end of the fiscal year on June 30 to reach agreement with the governor.

The centerpiece of the budget is a major expansion of the state s current property tax homestead exemption to all senior citizens and the permanently disabled, regardless of income, a move expected to affect one fourth of all Ohio property owners. The first $25,000 of real estate value would be exempted from local property taxes.

According to the Department of Taxation, the exemption would result in annual tax savings of $392, or nearly 39 percent, for a typical Toledo home owner with property worth $68,000.

By comparison, a homeowner in the Ottawa Hills School District with property valued at $239,000 would experience savings of $569 a year, a 10.5 percent reduction.

Statewide, the average savings are expected to be about $406.

The state s current homestead exemption is limited to senior citizens, the disabled, and other Ohioans who meet strict income guidelines. The cost for the program would increase from about $70 million a year for 220,000 property owners to $330 million for 775,000 homeowners.

The state plans to indirectly use the sale of the tobacco settlement bonds to underwrite the exemption.

The money would be used to fund school construction projects which the state has already committed to and eliminate the need to borrow more money for school construction over the next three years.

By not issuing bonds for three years, we will achieve $257 million in debt service savings, Ms. Sabety said. Instead of spending on debt service, we channel that to property tax relief.

Contact Jim Provance at: jprovance@theblade.com, or 614-221-0496.