COLUMBUS — The view from the 30th floor office of Gov. John Kasich is spectacular. On this day, though, the clouds hang low. If not, you feel as if you might see all the way from the capital to Lima.
It’s Lima, and the communities like Lima across the state, that Kasich is thinking about these days. Ohio’s economy is improving, with an unemployment rate below the country’s. Allen County has also weathered the recession. The area’s bread-and-butter jobs, such as manufacturing, engineering and process manufacturing, are back: Those companies are back to pre-recession employment levels and many can’t find enough skilled workers.
Kasich, who labeled his budget “Jobs 2.0,” said the entire package is focused on increasing employment opportunities for Ohioans.
“It’s the greatest moral issue we have not only in Ohio but America,” Kasich said recently during an interview with The Lima News. “When people are working, everybody is better.”
Those attending the State of the State at the Veterans Memorial Civic Center in Lima tonight should not expect “fireworks” today or new ideas, Kasich said, because he’s already laid out his policy proposals in a comprehensive budget.
“I will talk about where we want to go and why,” Kasich said.
The Republican governor unveiled a new two-year budget filled with sweeping changes in tax policy, school funding and a desire to accept more federal Medicaid dollars, increasing health care coverage for the state’s working poor. Democrats and Republicans, who control the House and Senate, have challenged and opposed many of the ideas. The General Assembly must pass a balanced budget by June 30. The two chambers have just begun to take up the budget.
The most significant proposals come in Kasich’s plan for tax reform. He would lower income tax rates 20 percent over three years; reduce by 50 percent business income taxes to owners and investors and lower the state sales tax from 5.5 percent to 5 percent.
Kasich would increase the severance tax on shale drilling. He also proposes broadening the base, adding sales and use taxes to a long list. Included on that list: services (such as attorneys, accounting, engineering, banking, consulting, advertising, management, utility, transportation, repair, installation, employment), entertainment and digital products (such as movie tickets, music, digital books, pay-per-view programs, games and apps), intangible property (such as trademarks, patents and licenses) and fees vendors pay credit cars issuers.
Law firm Vorys, Sater, Seymour and Pease analyzed the broadening and said Kasich “proposes to expand the sales and use tax base to a breadth never attempted by any state in history.”
“This tax expansion will hit Ohio businesses most directly and hardest, although individual consumers will bear the brunt of these new taxes in the form of higher prices for the things they typically buy and use,” according to the law firm’s analysis.
State Rep. Matt Huffman, R-Lima, supports lowering the income and sales tax, even if it comes at the expense of the increased severance tax. An attorney, Huffman expressed concern with several aspects of Kasich’s broadening idea. A tax shouldn’t affect someone’s spending behavior, Huffman said. So while he believes half a dollar wouldn’t dissuade someone from seeing a movie, he does worry that the same sales tax would affect a decision to hire an attorney, accountant or other service.
“You know, you have people who are maybe going to jail, would this affect their ability to hire a lawyer? There may be a constitutional question of whether you can do that,” Huffman said. “Also, the state is the biggest payer of legal bills. Is the state paying the tax? Some lawyers are appointed by the state or county to do criminal work. Now who has to pay the tax? A lot of lawyers come into the state from around the country to do business. Are we collecting sales tax on that?”
Huffman and Bob Sielschott, a certified public accountant and partner with Sielschott, Walsh, Keifer & Regula CPAs Inc., also expressed concern about some of the accounting provisions.
Sielschott is generally supportive of Kasich’s tax proposals, but he said he believes the state has a fairness issue to address.
“Why is it fair for government to make a profit on services that only exist because people have to comply with government rules, and if you don’t, the government will put you in jail or take your stuff? We have a 14,000-page tax code. Compliance doing that yourself is a dangerous thing,” Sielschott said. “Why is it fair to charge a 5 percent surcharge because you have to hire someone to keep you and your business in charge?”
Democrats have other issues with the broadening of the sales tax, and they say these are new taxes that benefit high-income people while harming middle and low-income families.
The party will have a demonstration event on Town Square today, saying Kasich is creating new taxes, harming local communities and in the end increasing tax burdens for people who have seen local tax increases because of state cuts to schools and local governments.
“Who will benefit most from this scheme?” Ohio Democratic Party Chairman and state representative Chris Redfern asks in an op-ed piece in today’s The Lima News. “According to a new nonpartisan study, with all of Kasich’s changes in place, those making more than $335,000 a year would get a handout of more than $10,000, while those making less than $51,000 would actually have to pay more than they do today.”
Kasich said the 50 percent small business tax cut will be instrumental in creating an environment for economic growth, and it far outweighs the new taxes businesses would pay under his plan. While few states proposed such taxes and even fewer have successfully implemented them, Kasich believes they will eventually happen in Ohio, with or without him.
“It’s either going to be used for a tax increase, to fund more government, or it can be used to provide the incentives for economic growth. I don’t think what we get with one hand we’re taking with the other, if you have to pay some more for lawyers. It doesn’t even out that way. It’s such an enormous break for them. It allows them to hire more people or reinvest in their business so they can stay competitive,” Kasich said.
Kasich also brushes aside criticism of some of the specifics.
“If people get themselves in the weeds, they lose the vision. You can always figure out a way to have a negative. This state needs to continue to move forward. It was in the ditch when I came in. We’ve worked together, the Legislature and the administration, and you can see the results in Lima. We’ve just improved the environment in this state so people can feel comfortable investing in here,” Kasich said.
Earlier this month, Kasich split political hairs and frustrated conservatives when he announced his desire to accept increased federal Medicaid dollars to increase health care coverage for the working poor. Kasich said he remains opposed to the mandate of coverage in President Barack Obama’s signature health care reform legislation.
The governor has been clear that for him, this isn’t a political decision, it’s a moral one, and he cares not at all about who he angers. The money would help hospitals. It would help care for the mentally ill. It would decrease pressure on the criminal justice system. It would help struggling families.
“This administration is committed to helping people who live in the shadows, whether they’re disabled, whether they’re poor,” Kasich said. “This is something I feel very strongly about; we need to help people who’ve been left out, and we need to help them to rise.”
Ohio Treasurer Josh Mandel urged the state to pass on the Medicaid money, and last week several Republican legislators expressed their opposition to the plan. At the moment, the Medicaid expansion is part of Kasich’s budget plan, but legislators can pull any piece of the proposal out for a separate vote.
In his proposal, Kasich includes an opt-out provision, so if the federal government doesn’t maintain funding, the state doesn’t have to maintain the coverage.
For Huffman, that piece, and clearly communicating that, is key.
“The problem with the Medicaid expansion is that we should have no confidence the federal government will be able to keep up its end of the bargain,” Huffman said. “If the federal money is ratcheted back, the state coverage needs to be ratcheted back. That has to be part of the proposal now. You can’t go back later,” Huffman said.
Locally, the plan is supported by the city’s two hospitals, many in the medical community and providers of mental health and substance abuse services. Broader coverage benefits the communities and helps hospitals deal with charity care, they have said.
“We are pleased with Gov. Kasich’s decision. As a health system that focuses on the community it serves, we believe the expansion represents a crucial step in creating a healthier community and building a better health care system for Ohioans,” said Mike Swick, president and CEO of Lima Memorial Health System.
Kasich has long advocated a student-centered approach to K-12 school funding that prepares for a variety of student opportunities after graduation and reiterated that when describing his vision of a school funding plan.
“Every kid has enough resources to compete with any other child in the state. Make sure when we have particular needs in school districts, that the dollars actually get to the student. And we want more dollars flowing into the classroom and not into bureaucracies or away from the student we’re trying to help,” Kasich said. “All of this is designed to give people a chance. A focus on putting dollars where children are, not where there’s buildings.”
When Kasich announced his school funding plan, superintendents and administrators across the state supported the early version, satisfied they weren’t seeing cuts as they had two years ago and liking Kasich’s message that he was addressing inequalities in the system. Since then, as school officials have seen dollar amounts linked to Kasich’s funding formula, many are crying foul.
Two years ago, the governor cut $2.4 million from Lima schools, Redfern said.
“Who’s to believe, Kasich or local school administrators? The only thing we know for sure is that numbers don’t lie, and despite any promises to the contrary, Lima City Schools receive less funding today than they did before John Kasich took office. No fancy words from the governor change that,” Redfern said.
In Kasich’s proposed school funding plan, Lima schools would receive a 5.54 percent increase in year one and a nearly 7 percent increase in year two. Twenty-one of the 34 districts in Allen, Auglaize, Hardin, Putnam and Van Wert counties would receive no increase in either year.
Huffman advocated for a major piece of Kasich’s school funding proposal, giving more families voucher and charter school choices. However, he did not like what he saw regarding K-12 school funding and talked with Budget Director Tim Keen about how the formula created more money for seemingly wealthier districts than poorer ones.
Huffman said he appreciated the fact that Kasich attempted to address guaranteed funding for districts that have lost enrollment and to address issues related to property tax funding, but the end result is far from clear.
“I don’t know what the plan is,” Huffman said, when asked if he supports it. “Let’s say you have $50 and three kids. You give two $20 and the third $10. That kid doesn’t go, ‘Wow, I got $10!” He goes, ‘Why’d I only get $10?’”
Kasich said he understands he won’t get everything he wants.
“But as I tell (the Legislature), I don’t think we want to deny small businesses this kind of breathing space and a shot in the arm. If you’ve got another way to do it, we’re open to that,” Kasich said.
The governor said he is enjoying the debate his plan has produced.
“It’s early. The whole budget has generated so much interest, and that’s good. Because big ideas help move companies and big ideas help move states,” Kasich said. “As long as you’re putting big ideas out there, you’re healthy. It’s when you refuse to look at problems, when you refuse to think aggressively, you lose. That’s where Ohio was for decades.”