Recently, Sprint began running a TV commercial entitled “What if firefighters ran the world?” It shows a legislature composed of firefighters in full turn-out gear using their cell phones’ push-to-talk features to solve the country’s problems. What do the firefighters do? They balance the budget, cut taxes, and increase spending on roads and water treatment.

If only it were that simple. Obviously, being a policymaker is more difficult than portrayed in the advertisement, as is being a firefighter. (How many of us would run into a burning building?) Elected officials must attempt to balance competing interests and conflicting priorities. They hear from advocates, lobbyists, constituents, caucuses, and other Members, on the entire gamut of possible issues. Good policymakers attempt to see into the future to try to anticipate consequences, and even the very best sometimes make mistakes. On the other hand, the firefighters are the epitome of decisiveness and consensus, two things we would sometimes like our legislators to display more frequently.

The problem is that the type of faulty reasoning – that we can lower taxes while increasing spending and have a balanced budget – used for comical effect in the commercial sometimes works its way into real-world policy debates. As a recent New York Times editorial pointed out, “To restore the health of the budget, let alone keep ambitious campaign pledges for spending more money, the next president, regardless of which party wins, will have to tax the American people more than any of the candidates has been willing to admit.”

It is not just the federal level where policymakers are up against difficult budget realities. Our state is facing a budget shortfall, and it would be a shame to see the significant progress on health and human service programs made in the SFY 2008-2009 budget erased due to economic downturn and a resistance to exploring additional revenues. There are options to meet this challenge, but few are politically popular. Unlike firefighters in a Sprint commercial, we can’t have it all. Correcting Ohio’s budget shortfalls will mean either a reduction in services or an increase in revenues, or both. These are real issues that require real discussion. Unfortunately, outfitting the General Assembly with push-to-talk mobile phones probably won’t help.

Good news for Ohio! For months advocates and policymakers have called foul on a directive released last year by the Centers for Medicare and Medicaid Services (CMS). The directive limited the ability of states to expand their SCHIP programs to children in families above 250% of poverty. With Ohio looking to expand its SCHIP program to 300% of poverty, the directive took the wind out of the sails of the bipartisan effort to provide health care to more of Ohio’s children.

Last week the General Accountabiity Office and the Congressional Research Service released opinions stating that, under the Congressional Review Act, the August 17th directive should have been sent to Congress for review before being implemented.

The new legal opinions help to validate the perspective that the directive has illegally, abruptly and unilaterally changed longstanding SCHIP rules through a “backdoor” mechanism. By making these far-reaching and harmful changes through a mere letter to state officials, Governors, families, and others were left with no opportunity to comment on how they might damage children’s coverage.

In Ohio, the directive already has meant that 35,000 children will not be able to take advantage of the SCHIP expansion.

In light of the growing evidence of the illegality of the August 17th directive and its ongoing harm to Ohio, and other states, efforts to cover more uninsured children, we need to continue the effort to see that the directive is suspended until SCHIP reauthorization can be completed. It is only fair to the nation’s children that far-reaching decisions about which of them can be covered through SCHIP are addressed in a public, open debate, rather than through a backdoor process that illegally circumvented even the chance for Congress to provide input.

The April LSC and OBM budget reports are out. The past few budget reports have warned that the weakened economy would start to show itself through lagging tax revenues, and the April reports seem to bare this out. However, expenditures remain below estimate so far this year, and LSC expects them to stay below estimate as the executive branch implements its budget reduction plan to reduce general revenue fund (GRF) FY2008 spending by about $202M. We saw large inflation in March according to the U.S. Labor Department. Although, LSC reports that if there is a national recession, analysts expect it to be shallow with a quick recovery.

Revenues - Tax revenue is up a meager .4% year-to-date compared to this time last year. All GRF sources are $517M (2.7%) below estimate year-to-date and $371M (18.4%) for the month of March. Every major tax source came in below estimate in March, and LSC reports they will probably remain below estimate for the rest of this fiscal year. GRF tax receipts are down $262.4M (1.9%) so far this year and down $110.7 million (7.3%) in March, mostly because of the personal income tax, which is most affected by economic conditions. The March sales and use tax, which also reflects the strength of the economy, also lowered, at 10.4% below estimate. The commercial activity tax came in 13.2% below estimate in March, and LSC predicts it will finish the year below estimate. Other tax revenue streams that are below estimate year-to-date include the corporate franchise tax, auto sales tax, public utility tax, earnings on investment, and the cigarette tax.

Expenditures – Most categories remain below estimate except for Medicaid, which is $18.8M (.3%) above estimate year-to-date. Medicaid caseloads have exceeded estimates for 8 consecutive months, and expenditures would be higher if it weren’t for delays in program expansions and provider rate increases. JFS will receive $8.9M for Medicaid due to a settlement with Merck & Co., Inc. - every bit helps. Additionally, spending in three higher education grant programs has been delayed next fiscal year.

FY 2008-09 Budget Corrections – we’re still waiting for the legislature to weigh in on most of the Governor’s proposed budget fixes, which require legislative action. Executive budget cuts are already being implemented. He has not yet proposed use of the rainy day fund or touching any tax reforms from the past few years.

FY 2010-11 Budget – OBM expects state revenue growth to remain flat in 2010-11 and acknowledged that this is because of the tax reforms of HB 66 and the weakened economy. OBM’s Operating Budget Guidance limits department requests to 90 and 95% of adjusted 2009 appropriations, even for GRF funds used for state match of federal funds. This limit is by fund, not by appropriation line item, which means that departments have to prioritize funding across all programs. Therefore, advocacy for the next budget should begin now at the state agency level as departments are preparing their budget requests for submission by September 15.

Nationally, more and more economists are acknowledging the likelihood of recession. The increase of 63,000 to February's unemployment, the largest increase since 2003, didn’t help things. Personal income and consumer spending are down, according to OBM. Mortgage issues continue to haunt Ohio. LSC reports that Ohio has one of the highest ratios of homeowners who have less than 50% equity. Some good news for Ohio, LSC reports that Ohio’s unemployment levels dropped from 5.8% to 5.5% in February after gaining some jobs in January. Given that Ohio’s economy can lag others, some might expect the current state’s budget shortfall to be worse than the latest OBM and LSC reports indicate. However, the numbers are likely to look worse in the coming months as the economy adds pressure to our safety net programs and continues to affect tax collections.

Revenue
General revenue fund tax receipts continue to lag and are $151.7M (1.2%) below estimate year-to-date. Total general revenue fund is down $184.3M (1.1%) year-to-date, although it is 4.6% higher than at this point last year according to LSC. Taxes that are below estimate year-to-date include personal income tax (-$118.2M/-2.1%), corporate franchise tax (-$35.6M/-11.3%, although up in February), auto sales tax (-$22.3M) public utility tax, the foreign insurance tax, estate tax, and the cigarette tax. Earnings on investment are below estimate $40M year-to-date. Non-auto sales tax remains above estimate year-to-date, but LSC and OBM do not expect this to continue. The commercial activity tax (which goes to schools and local government for loss from phase-out of the tangible personal property tax) is down $16.4M (2.2%) year-to-date.

Expenditures
Expenditures are $310.3M (1.75%) below estimate year-to-date and $52.7M below for February. Program spending in the first half of the fiscal year, for which payroll entries were complete, was $134.3M (1.0%) below estimate. All categories are below estimate except Public assistance and Medicaid, which was $34.2M (.6%) over estimate according to LSC. Medicaid is $10.6M over estimate year-to-date. Medicaid expenditures would be higher if the program expansions and provider rate increases had been implemented as planned for this past January. Caseload increases and unrealized cost containment measures have added to Medicaid expenditures. OBM expects the net of these Medicaid savings and increases to add another $132.4M in spending this fiscal year. Most of the Medicaid caseload increase has been in the Covered Children and Families category, where the need increases as the economy weakens, but much of the cost increase is in the more expensive Aged, Blind, Disabled category. Ohio continues to pursue the Medicaid expansions that were approved in HB 119, which not only serve those who need health care, but brings federal dollars to Ohio.

TANF – LSC reports that ODJFS expects TANF reserve dollars (unspent from previous years) will be completely depleted by early FY09. Ohio’s reserve dollars had topped $894M in federal fiscal year 2005 before the secret got out, and they've been well utilized ever since. These reserves must be spent for “assistance,” which means that they must be spent in the Ohio Works First program. Once the reserves are gone, Ohio Works First will have to be funded from the same TANF federal and state current year funds as the other programs that HB 119 funded through TANF.


Medicaid Buy-in for Workers with Disabilities:
The federal government approved Ohio’s program, which allows people with disabilities to work while keeping their Medicaid. Beginning April 1, 2008, participants up to 250% of the federal poverty level can pay a premium to keep their Medicaid coverage. See more at http://jfs.ohio.gov/ohp/mbiwd.stm

As debate over the budget resolution continues on the Senate floor, Senators are once again discussing the estate tax. Currently the estate tax effects one out of every 200 estates. Once scheduled changes are implemented in 2009, that number will drop to three out of every 1000.

Despite the fact that the 2009 exemption of $7 million per couple would shield 997 out of every 1,000 estates from tax, Senator John Kyl of Arizona has introduced an amendment to further reduce the estate tax by raising the exemption to $10 million per couple and lowering the top rate from 45 percent to 35 percent rate. All of the additional benefits would go to the 3 in 1000 estates that would be taxable under 2009 law. According to the Joint Committee on Taxation, Kyl’s amendment would amount to repeal of more than three-quarters of the estate tax.

So what do all these numbers mean? Because Senator Kyl’s amendment does not provide any offsets to make up the lost revenue, his amendment is likely to add another $300 billion to the deficit over ten years (when interest costs are included). Alternatively, if the lost revenue were made up with spending cuts, then we would see an increased burden on state budgets seeking to maintain programs in the face of sharply reduced federal funding.

Reductions in a tax for so few should not put essential investments for so many at risk. At a time when Americans are asking for increased commitment to health care, education, and veterans’ assistance, among other things, the Senate should think carefully about whose priorities it puts first.

Senators George Voinovich and Sherrod Brown need to hear from their constituents about the need to defeat the Kyl amendment on the estate tax in the interest of protecting essential programs and preventing further strain on already strapped Ohio state budget.

Ohio, along with about half the states, faces a budget shortfall in fiscal year 2009, according to the Center for Budget and Policy Priorities. Both the OBM and LSC February monthly budget reports describe a slowing national economy in late-2007 and early-2008. The President signed a federal fiscal stimulus on February 13 of $168 billion for fiscal years 2008-09, which is good news (despite debate about the form of the stimulus) considering that approximately half of economic forecasters are now predicting a national recession this year. Ohio faces its own challenges, including high foreclosure rates, with 1.8% of Ohio households in foreclosure at some point of 2007, according to LSC. LSC also reported that Ohio’s unemployment rate rose to 6% and is forecast to average 6.3% in FY 2009 (our current budget used a forecast of 5.5% for this year and 5.4% for next), which is expected to affect state revenues and the need for Medicaid and other public assistance programs.

Revenues – Although General Revenue Fund (GRF) tax receipts were above estimate by $31.9 million in January, they remain below estimate so far this state fiscal year by $86.6 million (.8%), and OBM and LSC do not expect the January surplus to continue. OBM reported that the tax reforms of H.B. 66 continue to phase in and affect year-over-year revenue growth.

Expenditures – Expenditures have been $171.4 million under estimate so far this state fiscal year (1%) and came in $33.1 million (1.5%) below estimate in January, according to OBM. All spending categories came in under estimate in January except for Tax Relief, however, they are expected to come in closer to estimate once December and January payroll close. Medicaid GRF spending was $27.7M (3.5%) below estimate in January per OBM, at least partly because expansions and rate increases that were planned for January 1 have not happened, however, expenditures are about $5.6 million above estimate year-to-date (.1%) because of increased caseloads, especially in the Aged, Blind and Disabled category. The good news is that Ohio’s federal share is set to increase in federal fiscal year 2009 by about $40 million over the budgeted amount because of an increase in Ohio’s federal matching FMAP rate. Ohio continues to work with the federal government to expand Medicaid to serve the increasing need and to maximize federal matching funds. TANF spending was over-estimate $6.2 million in January and $7.1 million year-to-date. OBM reports that TANF will only fund Prevention, Retention and Contingency services and Child Care from the TANF general revenue fund for the rest of this fiscal year.

OBM testimony
J. Pari Sabety, OBM Director, testified in front of Ohio’s House Finance Committee on February 26 about a shortfall of between $733 million and $1.9 billion for the current biennium budget. Director Sabety outlined three possible scenarios for Ohio’s economic picture – low growth, no growth, and recession. Based on its analysis, OBM found the low growth scenario the most likely ($733 million shortfall) and used it to balance the budget. Strategies to correct the budget deficit include budget cuts (52%), lapses to the General Revenue Fund (21%), transfer to the General Revenue Fund ($50.3 million), additional tobacco securitization interest income ($25 million) and proceeds from enhanced lottery proceeds including keno ($73 million). Director Sabety explained that the Governor’s plan maintains his priorities to maintain tax cuts and to avoid new or increased taxes or fees. Most of the savings would be accomplished through administrative action, but some pieces will require legislative authority, probably in April or May. The two main reasons given for the shortfall were reduced revenues and increased Medicaid spending for reasons including unrealized savings from Medicaid cost containment ($51 million in SFY 2008 and $164 million for SFY 2009). Medicaid caseloads have exceeded estimates for six consecutive months. Director Sabety answered Committee questions about the reliability of the latest projections, the extent a downturn will impact Medicaid and cash assistance caseloads, plans for an increasing older population, the unified longterm care budget, the timeline for Medicaid enrollment expansions, postponement of increased provider rates, and unrealized Medicaid cost containment savings.

Governor Strickland congressional testimony
Governor Strickland testified before the U.S. House of Representatives Committee on Energy and Commerce, Subcommittee on Health, February 26, 2008. He opposed the President’s cuts in Medicaid spending and state flexibility and CMS regulations that would cut program funding (which Congress has put a moratorium on), saying that they’re budget cuts made outside the legislative process that have been disguised as regulation.

The Center for Community Solutions released a new report that evaluates the federal economic stimulus package signed by President Bush last week and examines its impact on Ohio. The report concludes that while the package’s tax rebates are reasonable, additional stimulus may be necessary. According to the authors, “Because of economic downturn, Ohio is facing budget shortfalls that the recently enacted federal stimulus package does nothing to address.” It cites several other stimulus options that would have a greater effect on Ohio including federal aid to states in the form of block grants, an increase in federal Medicaid match, expansion of LIHEAP, emergency food assistance, unemployment insurance, and the Highway Trust Fund.

To view the full report, visit http://www.communitysolutions.com/images/upload/resources/EconomicStimulusMoreNeeded021508_2.pdf