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Published: Wednesday, 1/12/2011

Gov. Kasich begins Ohio budget talks

COLUMBUS -- Newly inaugurated Gov. John Kasich Tuesday met with members of the General Assembly for the first time and conceded that many in the room are not going to like the budget he's going to propose by March 15.

But he warned members of the Ohio Senate and House not to let the "special interests" win when it comes to the budgetary decisions ahead.

"They're going to come here, and they're going to fight," the Republican governor said. "If they win this fight -- we are going to balance this budget -- [then] it's going to be more on people that have less … We don't want to go there …"

"If we can be creative together and imaginative together, we can get this done, and I can tell you, the whole country is watching what we do," he said.

Mr. Kasich goes into discussions about the next two-year budget knowing that both insiders and outsiders have projected a shortfall in the neighborhood of $8 billion, partly because of the current budget's heavy reliance on federal stimulus dollars and other one-time funds.

But before lawmakers start erecting the ladder to climb out of the budget hole, some first intend to dig the hole a little deeper. House Republicans Tuesday introduced a bill to get rid of Ohio's estate tax, which generates about $60 million a year for the state and $240 million for local governments. The bill proposes no replacement revenue.

Ohio is one of 20 states with an estate tax. It taxes estates valued at between $338,333 and $500,000 at 6 percent. The rate jumps to 7 percent for estates above that threshold.

"The impact around the state is so minimal, $60 million, but the impact on families and collectively on Ohioans is great and significant," Rep. Jay Hottinger (R., Newark) said. "I would make the argument that this should have been ended a long time ago. Today's the day."

On the campaign trail, Mr. Kasich called for elimination of both the estate tax and the personal income tax, but has provided no timetable for either.

The city of Toledo received $2.9 million from the estate tax in 2010 and has projected $3 million for the current budget.

Rep. Teresa Fedor (D., Toledo) knows the Republicans have the votes to pass the bill.

She, however, is withholding judgment.

"How are they going to replace those funds that go directly to the local government?" she asked.

"Is that going to contribute to the deficit or [hurt] what we need to do to provide the services of local government -- police, fire, streets, roads, bridges …?"

The bill is supported by the Ohio Farm Bureau, which argues that the tax unfairly punishes farmers whose assets are tied up in real estate, sometimes resulting in the loss of farmland to development to pay the tax.

But cities fear that they could face a double whammy with the coming budget. In addition to the potential loss of estate tax revenue, of which they get 80 percent, they anticipate cuts in the Local Government Fund, which currently guarantees them 3.5 percent of the general revenue fund.

The Local Government Fund contributed $16.4 million to Toledo's coffers in 2010. The city's current budget already anticipates a reduction to $11.4 million.

"You're talking about at least $11 million for the Local Government Fund in 2011 and another $3 million in estate taxes," said Clarence Coleman, Toledo's commissioner of taxation and treasury. "You add that together, and it's a huge chunk of change for us."

John Mahoney, deputy director of the Ohio Municipal League, said lawmakers have the right to enact tax policy but must also look at the consequences of those decisions.

"You can't say, 'I cut taxes' without also saying, 'I cut local services,' or 'I encouraged local governments to raise their taxes'," he said. "That's the direct consequence."

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


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