Thursday, March 27, 2008


Budget reports show increasing needs

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.

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 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

Thursday, March 13, 2008


Estate Tax Redux

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.

Tuesday, March 04, 2008


Ohio Revenues up in January, but Budget Expected to Tighten in 2009

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.

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