Ohio has plenty of company in scramble to balance budget

6/22/2009

COLUMBUS - Misery loves company, they say. If that's true, Ohio must be ecstatic.

Facing a gaping $3.2 billion hole in its next two-year budget, Ohio can take comfort in knowing its neighbors also are scrambling.

"Ohio is definitely not alone," said Liz McNichol, senior fellow with the Center on Budget and Policy Priorities in Washington.

"Our survey shows that all except three states are facing budget shortfalls in their current fiscal years and/or in fiscal year 2010."

The three exceptions are North Dakota, Montana, and Wyoming. All are geographically large, sparsely populated states that have benefited greatly from oil and gas drilling.

On Friday, Gov. Ted Strickland swallowed his previous rejections and reluctantly backed a proposal to introduce an unspecified number of slot machines at Ohio's seven horse-racing tracks, including Toledo's Raceway Park.

That would raise an estimated $933 million over the next two years through licensing fees and machine profits.

After factoring in other budget changes, the net gain would be an estimated $765 million.

That would leave a $2.4 billion deficit that he proposed to fill with another round of major budget cuts.

Among those cuts would be ending a popular preschool program for low-income families, closing a juvenile detention facility, reducing cash assistance for the physically and mentally disabled, restricting eligibility for subsidized child care, and reducing college financial aid.

"These will be painful cuts," he said.

"They represent a strong majority of the $3.2 billion budget gap. I will not sugarcoat what this will mean in real terms. We will see additional staff reductions, further shrinking the state government's work force.

"Worthwhile and critical programs and services will be reduced or suspended to reprioritize limited resources to help the maximum number of Ohioans," he said.

"I do not believe that we can in good conscience make cuts that would eliminate the essential safety-net services that Ohioans need now more than ever."

His proposal further cemented his position and that of legislative leaders that now is not a good time to increase taxes, a move that other states have done or are considering doing.

A House-Senate conference committee is expected to start the surgery on Ohio's budget next week.

The fiscal years for Ohio and 45 other states will end June 30, making it crunch time for passage of new spending plans and the last-minute balancing of current-year budgets.

Michigan, whose fiscal year ends Sept. 30, is among four states whose fiscal years are exceptions to that rule.

"The situation is so deep and has spread to every region of the country, so anything and everything is on the table - cuts to programs, tax and fee increases," said Todd Haggerty, research analyst with the National Conference of State Legislatures. "This situation is so unprecedented that they're looking at everything possible."

In some cases, states such as Kentucky that had passed budgets for next fiscal year are back to patch them. Kentucky raised taxes on cigarettes and alcohol, expanded its sales tax to digital downloads of software and cell phone ringtones, and cut funding to K-12 schools and universities.

Synonymous with horse racing, the state is now considering introducing slot machines at tracks to deal with a new $1 billion deficit.

"They are seeing new revenue forecasts that are causing them to go back and look at what they've already done and decide how to proceed," Mr. Haggerty said.

In Michigan, ground zero of the national recession with the collapse of the auto industry, Gov. Jennifer Granholm has ordered midterm cuts in spending and has proposed doubling liquor-license fees and the tax on noncigarette tobacco products.

In Pennsylvania, Gov. Ed Rendell has proposed a temporary increase in the state income tax, and lawmakers are talking about adding Las Vegas-style table games to its slots parlors.

Ohio has made nearly $1.9 billion in cuts to the two-year budget that will expire on June 30, and it will raid much of its "rainy-day fund" budgetary reserves to help patch a $912 million shortfall that has opened for the current fiscal year.

But neighbors Indiana and West Virginia still have budgetary reserves, giving them cushions to patch shortfalls in their next budgets.

Like the oil and gas reserves of the three western states still in the budget black, West Virginia has benefited from its coal industry.

The state has, however, had to boost taxes paid by businesses to fuel an overwhelmed unemployment insurance fund.

The true picture of the problems in most states is masked by an unprecedented level of emergency federal aid serving as sand bags against rising tides of red ink, leading to predictions that, if the economy doesn't turn around, the budget woes of this year will pale in comparison to those of 2012.

"We would expect states to face shortfalls in the next two to three years, but it's unclear just how big they'll be," Ms. McNichol said. "It's always possible that the federal government could extend some of this if things don't get better. Otherwise, more states will turn to revenue increases."

In a report issued last week, aptly titled "April is the Cruelest Month," the Nelson A. Rockefeller Institute for Government noted that collections during the critical income-tax month were off 26 percent among 37 of 41 states that impose the tax.

Tax figures for four states, including Kentucky, were unavailable.

"Budget gaps are likely to have increased by several multiples of the amount by which tax revenue has fallen short," said one of the study's authors, Institute Senior Fellow Donald Boyd.

"Many states have begun revising their budget forecasts so that elected officials can take the new shortfalls into account as they finalize their budgets."

Once they've exhausted their budgetary reserves, amid fear they are cutting too deeply into the bone, a number of states, such as Ohio and Kentucky, have talked about rolling the dice on gambling in hopes of reversing shortfalls.

Some, including Pennsylvania, are talking about increasing gambling offerings or expanding casino hours.

Delaware's governor proposed legalizing sports betting, and Massachusetts' governor has proposed three state-operated slots parlors.

"These are serious times and families across Ohio are hurting," House Speaker Armond Budish (D., Beachwood) said.

"We have limited options to address the state's weakened budgetary situation. Yet, we must do all we can to avoid raising taxes on hard-working Ohio families, while protecting those who have been affected by this tough economy," he said.

He said he backs Mr. Strickland's proposal to rely on slot machines to avoid tax increases and more budget cuts, but Mr. Budish said he hopes Ohio still can offset some proposed cuts through nontax revenue increases.

The Republican-controlled Senate had eliminated a number of fee increases for specific services that Mr. Strickland had proposed and the House had expanded upon in its version of the budget.

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.