Ohio leaders project rough budget process

12/8/2008

COLUMBUS - Lisa Hamler-Fugit has been on the Ohio budget roller coaster enough to expect the loops, twists, and sudden drops.

But even the executive director of the Ohio Association of Second Harvest Foodbanks was shell-shocked by the worst state budget picture she's ever seen. And she knows that with a large portion of the state's budget dedicated to helping the poor and sick, such programs are likely to be targets for huge cuts.

"They have used every accounting procedure possible to keep this budget in balance," she said. "But the personal income and sales taxes are just not there. To be honest, the social service and faith-based communities that provide basic safety, food, shelter, utility, and monetary assistance have seen demand off the charts."

The news is so bad that Gov. Ted Strickland plans to personally go on the road to deliver the same message directly to Ohioans.

Mr. Strickland, in a meeting with the state's top newspaper editors last week, said the financial problems facing state government are "historic," with income tax and sales tax revenue predicted to fall for two straight years, something not seen "certainly in my lifetime."

"This is a dilemma that calls for wisdom that I don't think any individual or group has at this time," the governor said.

Mr. Strickland said he has asked President-elect Barack Obama for $5 billion to help Ohio weather the looming economic disaster.

And what happens if billions in federal aid doesn't make it to Ohio?

"We will see the disintegration of our state," was Governor Strickland's somber prediction.

State agencies and organizations that live off state funds are preparing for hard times.

"I was absolutely flabbergasted," said David Owsiany, executive director of the Ohio Dental Association.

The organization has had to fight to preserve Medicaid-funded dental care for poor adults, an optional program that the federal government does not mandate.

"I knew things were bad, but I always thought there was light at the end of the tunnel and there'd be a bounce at the bottom," he said. "What I've heard is we haven't hit bottom yet."

State Rep. Peter Ujvagi (D., Toledo), about to enter his fourth and final two-year term in the House, also has been through these ups and downs before under Republican Gov. Bob Taft. Each time the state managed to balance its books with spending cuts, tax hikes, accounting tricks, federal aid, and raids on tobacco settlement dollars.

But this is the worst the lawmaker has seen.

"We are in an emergency," he said.

"The [Commercial Activities Business] tax was a great idea, but there's only one problem. You need to have commercial activity. And we don't know where the bottom is. The next two years are going to be very, very difficult."

Last week, Mr. Strickland painted a downright ugly picture of the state's economy and budget.

His staff has predicted a budget hole of $640 million in the fiscal year ending June 30 as well as a projected deficit of $4.7 billion in the next two-year budget.

\\The latter figure assumes that the state will follow through with a 10 percent reduction in state agency spending that is already part of early budget planning.

Without that 10 percent cut, the deficit could loom as large of $7.3 billion during the next biennium.

Mr. Strickland has taken tax hikes off the table and has so far opted not to interrupt five years of gradual personal income tax cuts that were set in motion before he took office. The last increment of what will be a total 21 percent cut over five years will take effect on Jan. 1.

And the dire budget numbers do not factor in the potential impact of a recent 10th District Court of Appeals decision that declared unconstitutional the application of Ohio's new Commercial Activities Tax to business gross receipts generated by food sales.

The tax replaced two other unpopular business taxes.

While the decision is under appeal, the state is banking on collecting the roughly $188 million a year generated by that portion of the tax.

The state has used every accounting maneuver it could think of and what was once considered a largely endless stream of tobacco settlement checks has been committed to funding property tax breaks for senior citizens, school construction, and economic development investments.

That leaves spending cuts and, if Mr. Strickland has his way, a huge helping hand from President-elect Obama.

During the last recession in 2002, the Bush Administration sent $770 million in one-time budget support to Ohio, half of it tied directly to shoring up Medicaid, the federal-state health insurance fund of last resort for the poor and infirm. The state went through it quickly.

This year, the nation's governors have urged Mr. Obama to come up with a total package of $100 billion, and Mr. Strickland expects Ohio's share of that to be far more than $770 million.

David Hansen, president of the conservative Buckeye Institute for Public Policy Solutions, said Ohio made wrong decisions like raising taxes during the last recession. The current situation, as bad as it is, should be seen as an opportunity to right the ship of state that should smoothly sail after this recession ends, he said.

"We made all these commitments," said Mr. Hansen. "Look at Medicaid. We expanded Medicaid when Ohio itself wasn't particularly expanding. We expanded the number of people covered under a strategy that government should provide health services. We did not work hard enough to control what government should be doing and spending."

The nightmarish scenarios have been presented at a time when the state has just entered face-to-face bargaining with the largest of its state employee unions, the Ohio Civil Service Employees Association. The union represents about 35,000 of Ohio's 61,000 employees, and its contract typically serves as the blueprint for those of the smaller unions to follow.

The association's contract will expire in February.

"We have kept OCSEA well-informed through its executive board as the [governor's] cabinet has been," said Ron Sylvestor, spokesman for the Ohio Department of Administrative Services.

"The story has gotten worse as the year has progressed. The budget situation is looming large over these negotiations."

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.