Ohio facing 'historic' budget cuts

12/1/2008

COLUMBUS - Gov. Ted Strickland Monday painted a downright ugly picture of the state's economy of "historic proportions'' that he predicted will get even uglier in coming months.

He and budget Director Pari Sabety set the stage for more budget cuts in the fiscal year to end June 30 as well as even stingier spending proposal for the next two years that Mr. Strickland will unveil early in 2009.

His budget prognosticators are predicting a shortfall of $640 million in the current fiscal year just five months old and a projected a deficit of $4.7 billion over the next two years, assuming spending levels at 90 percent of what government agencies are currently spending after $1.3 billion in prior budget cuts.

"Even assuming a 10 percent reduction in all state agencies based on the 2008 recalibration spending levels, we will still face a project deficit of $4.7 billion,'' said Mr. Strickland. "There will be shared sacrifice, but I also recognize that historic opportunities lie on the other side of our historic challenges.''

He took tax increases off the table, including interruption of current personal income and business taxes that are being gradually phased in.

But this time the governor stopped short of taking any areas of the budget, including subsidies to K-12 education, off the table for future cuts as he has in the past. He stressed that his remarks Monday were designed to start a statewide discussion about Ohio's priorities at a time when state residents are increasingly depending on government services.

He's also counting on the federal government providing "significant'' aid to states in an expected economic stimulus package that Mr. Strickland hopes will be waiting for Barack Obama to sign on Inauguration Day. He also forcefully urged Congress and the President to assist the nation's auto industry.

"We want a package that will not only help the Big 3, but also help the suppliers,'' he said. "That's absolutely critical to Ohio.''

The state continues to feel the effects of a series of personal income and business tax cuts started under Republican Gov. Bob Taft in 2005 that won't be fully implemented for another year. Considered an investment in the state's long-term fiscal health, the cuts have so far made little headway aganst state and national economic downward trends.

Revenue collections have been even worse that the administration's prior dire predictions.

The pain also occurs at a time when Mr. Strickland has said he will deliver on his campaign promise to propose an overhaul in how the state funds schools. That plan would be an answer to repeated rulings from the Ohio Supreme Court that the state's reliance on local property taxes places students in poorer districts at a competitive disadvantage with those in wealthier districts.

Ms. Sabety noted that Ohio wage growth is expected to drop below zero into negative territory for the first time since the Great Depression - the first two-year decline in sales tax revenue since 1950 and the first two-year decline in personal income tax collections since 1972 are expected "Right now we are managing five years of (General Revenue Fund) declines,'' she said. "This is indeed historic.''

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