Ohio suffers further slide in revenues; data reinforce grim forecast of $733M shortfall

3/12/2008

COLUMBUS - Ohio's budget woes continued to worsen last month as income tax collections tanked and fewer-than-expected Ohioans bought cigarettes and alcohol, staples the state used to be able to count on for revenue.

J. Pari Sabety, Gov. Ted Strickland's budget director, said that while the numbers are not good, they are about what the administration told lawmakers to expect in January when it estimated the budget could face a best-case-scenario shortfall of $733 million by June 30, 2009.

As national trends point toward recession, there were some encouraging signs in Ohio's economy in February. The employment picture improved slightly. Sales tax collections remain stable, and corporate profit taxes came in above monthly estimates, although they're still off 11.3 percent for the year.

"[Sales taxes] are surprisingly robust," Ms. Sabety said. "I wish I could tell you [why], but right now people are spending a lot of their house equity, spurring consumption, and keeping the American economy humming. Ohio consumers continue to be able to spend rather robustly, so we have not yet seen a downturn in sales tax numbers."

But she said she found lower-than-expected income-tax withholding from employee paychecks to be a troubling harbinger for the future.

In all, general revenue taxes brought in $65.1 million, or 5.8 percent less than expected last month, contributing to a shortfall for the first eight months of the fiscal year of $151.7 million, or 1.2 percent below budget.

The state has been helped, however, by lower-than-expected spending so far, 2.7 percent below projections in February and 1.7 percent below what was expected so far for the year.

"We are in pretty good shape for the spending numbers, but keep in mind that the Medicaid spending estimates assumed implementation of all of the [health-care] expansions and increases in provider rates," Ms. Sabety said. "A number of those expansions and provider increases have been delayed, so when looking at the estimates, it's comparing apples and oranges."

She said decisions will have to be made as to whether to eventually proceed with the expansions in health-care services as planned in the two-year budget passed last year as well as the scheduled increases for medical-care providers.

In January, Mr. Strickland's budget prognosticators estimated that the budget shortfall could reach as much as $1.9 billion by mid-2009, depending on how bad the economy gets.

Most of a midterm budget correction package that the governor unveiled Jan. 31 addresses the best-case $733 million deficit scenario, but much of that has yet to be enacted, let alone have an impact on budget numbers.

Two targeted mental hospitals in Dayton and Cambridge have yet to close and the state has yet to pick its first keno lottery numbers in bars. The state, however, has begun reducing its work force as planned. Some of the changes will require legislative approval.

Despite an improving employment picture in Ohio, personal income taxes in February were 16 percent, or $50.3 million, below projections included in the two-year budget enacted July 1. For the fiscal year, income taxes are $118.2 million, or 2.1 percent, below estimates.

Besides falling below budget estimates, which typically anticipate some revenue growth year to year, personal income taxes in February, 2008, actually dropped 14.3 percent below what was collected in the same month in 2007. The state credits at least some of the difference to greater-than-expected issuances of tax refunds at this stage.

Cigarette taxes were off 2 percent last month, 1.2 percent for the year. Thanks to a major hike in the tax, annual cigarette tax collections had recently exceeded $1 billion, representing about 5 percent of the state's total budget. But with voters approving a statewide ban on smoking in indoor public places in November, 2006, cigarette sales have become less reliable.

"We always knew we would see a gradual decline in cigarette tax revenue because of the increase in the tax rate, but we will also see short and long-term health-care savings as fewer Ohioans are smoking," said Tracy Sabetta, spokesman for the American Cancer Society. "With passage of the Smoke-Free Workplace Act, Ohio has finally put a comprehensive plan in place to allow us to see this kind of reduction in the smoking rates."

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.