John Kasich and his fellow Republicans in charge of the state legislature often boast about closing a huge budget hole without raising taxes. They quickly add that they even have reduced the state tax bill for Ohioans. What Policy Matters Ohio highlighted in a report last week is one of the key components in how the governor and his allies achieved their budget feat: They delivered “three blows to local government,” as the Cleveland-based think tank put it.
The first came in the form of slashing the Local Government Fund in half, counties, cities, townships and others with roughly $1 billion less than they received in the final budget of the Ted Strickland years. Worth recalling is the level of revenue sharing reflected an arrangement dating back eight decades. The governor lectures Washington about taking a lesson from Ohio in fiscal management. What would happen if the federal government reduced the money flowing here by half?
The second arrived with the elimination of the estate tax, even though just 8 percent of estates faced the tax, and 93 percent of the wealth would flow to heirs untouched by the levy. The estate tax generated $625 million for local governments the past two years. Now it will be gone.
The final blow came with the end of the property tax rollback. Starting with local levies in November, the state no longer will pick up 12.5 percent of the tab. Here, too, is the abandonment of a practice long in play, dating to the early 1970s, when the state adopted an income tax. Slowly but surely, the property tax burden will weigh more heavily at the local level, making the task of winning voter approval of levies for schools and social service agencies all the more difficult.
Policy Matters Ohio calculates the total shortfall in revenue for local governments by fiscal 2015 at $1.5 billion. No question, the Statehouse strategy involves something like “starve the beast.” The thinking is, local governments now have an incentive to find efficiencies, even share services or merge. Those are good things.
At the same time, this amounts to a version of pass the buck. The tough decisions about spending reductions and tax increases are left with officials at the local level. At the Statehouse, they have grabbed the money and orchestrated an elimination of the estate tax that will make it tougher for mayors and other local officials.
Meanwhile, look at the “general government” line item in the state budget analysis of the Legislative Service Commission. Under the plans of the governor and Republican-controlled legislature, spending in this area has climbed from $1.5 million to $1.9 billion, an increase of 26 percent. To be fair, the comparison is rough. It does provide a clue to what has happened with the state budget.