-20 -10 -5-20 -10 -5A formula for fertilizer or A formula for fertilizer or

disaster ?disaster ?

Balancing theBalancing theState’s Budget State’s Budget on on YOURYOUR Backs Backs

OHIO’SOHIO’SLOCAL GOVERNMENTLOCAL GOVERNMENT

FUNDSFUNDS

and theand the

’06/’07 Biennial Budget’06/’07 Biennial Budget

The Coalition MembersThe Coalition Members

County Commissioners’ Association of County Commissioners’ Association of OhioOhio

Ohio Municipal LeagueOhio Municipal League

Ohio Township AssociationOhio Township Association

Ohio Library CouncilOhio Library Council

Ohio Parks and Recreation AssociationOhio Parks and Recreation Association

The GoalThe Goal In the State of Ohio’s FY 2006/2007 In the State of Ohio’s FY 2006/2007

biennial budget process: biennial budget process:

Assure no further cuts occur to Assure no further cuts occur to the 3 funds the 3 funds

Return to the permanent law Return to the permanent law funding formula funding formula

Setting the Stage…Setting the Stage…The State’s Fiscal PictureThe State’s Fiscal Picture

Temporary sales tax expiresTemporary sales tax expires Yielding about Yielding about 1.25 Billion1.25 Billion per FY per FY

FY 04/05 Biennial Budget – GRF $49 FY 04/05 Biennial Budget – GRF $49 BillionBillion expenses grew by 8% over 02/03expenses grew by 8% over 02/03[GF 10.1%][GF 10.1%]

Medicaid “pac-man” Medicaid “pac-man” [40% of the FY 04/05 growth][40% of the FY 04/05 growth]

Human services including Medicaid Human services including Medicaid [30%][30%]

Primary and secondary education Primary and secondary education [34%][34%]

Higher education Higher education [17%][17%]

Setting the Stage…Setting the Stage…“Structural Deficit”“Structural Deficit”

Defined: “the funding of ongoing Defined: “the funding of ongoing expenditures with one-time money”expenditures with one-time money”

Estimate is 3.8 Billion Dollars for FY 06/07Estimate is 3.8 Billion Dollars for FY 06/07 One-time revenue components of FY 04/05One-time revenue components of FY 04/05

Temporary sales taxTemporary sales tax 2.5 B 2.5 B Federal Medicaid Fiscal ReliefFederal Medicaid Fiscal Relief 771 M 771 M Tobacco Trust Fund MoneyTobacco Trust Fund Money 234 M 234 M Freeze of Local Government Funds 297 MFreeze of Local Government Funds 297 M

Setting the Stage…Setting the Stage…Tax Expenditure LimitationTax Expenditure Limitation

Proposed as Constitutional Amendment sponsored by Proposed as Constitutional Amendment sponsored by Citizens for Tax Reform & Joint Legislative ResolutionsCitizens for Tax Reform & Joint Legislative Resolutions

Restricts state spending growth to the prior year’s level Restricts state spending growth to the prior year’s level plus an increase for inflation and population adjustmentsplus an increase for inflation and population adjustments Spending “cap” can be exceeded only if:Spending “cap” can be exceeded only if:

legislation passed by 3/5 vote of the Legislaturelegislation passed by 3/5 vote of the Legislature Approved by the governorApproved by the governor Receives a majority vote at a statewide election Receives a majority vote at a statewide election

Prohibits “unfunded mandates”Prohibits “unfunded mandates” 7.25% of state revenues to the Local Government Fund7.25% of state revenues to the Local Government Fund Vote required for local governments’ spending/tax Vote required for local governments’ spending/tax

increaseincrease Increase spending beyond inflation and population adjustmentsIncrease spending beyond inflation and population adjustments Levy a new tax or increase the rate of an existing taxLevy a new tax or increase the rate of an existing tax

Proposed Budget - SpendingProposed Budget - Spending $51.4 Billion in GRF over the Biennium$51.4 Billion in GRF over the Biennium

Lowest rate of GRF increase in 40 yearsLowest rate of GRF increase in 40 years FY 2006 - $25.4 Billion – 1.1%FY 2006 - $25.4 Billion – 1.1% FY 2007 - $26.0 Billion – 2.3%FY 2007 - $26.0 Billion – 2.3%

Many agencies spending less than in 2000Many agencies spending less than in 2000 Reduces or holds flat 36 of 68 state agenciesReduces or holds flat 36 of 68 state agencies

Growth drivers curtailedGrowth drivers curtailed Medicaid - $577 Million increase after cuts to save Medicaid - $577 Million increase after cuts to save

$832$832 $8.1 Billion / 38% of all state spending [40%]$8.1 Billion / 38% of all state spending [40%]

EducationEducation K-12 – FY ’06 $9.37 Billion/2% - FY ’07 $9.61 Billion/2.5%K-12 – FY ’06 $9.37 Billion/2% - FY ’07 $9.61 Billion/2.5% Higher Ed – FY ’06 $2.47 Billion/1% - FY ’07 $2.52 Billion/2%Higher Ed – FY ’06 $2.47 Billion/1% - FY ’07 $2.52 Billion/2%

Proposed Budget – Tax Proposed Budget – Tax ReformReform

Property TaxProperty Tax Business Tangible Personal PropertyBusiness Tangible Personal Property

Machinery & EquipmentMachinery & Equipment Assessment rate 12.5% in ‘06 and none in ’07Assessment rate 12.5% in ‘06 and none in ’07 New purchases not taxedNew purchases not taxed

Inventory [phasing out at 2%/year / no replacement]Inventory [phasing out at 2%/year / no replacement] Maintain 21% rate for ’06/ and ’07 [instead of 19% / 17%]Maintain 21% rate for ’06/ and ’07 [instead of 19% / 17%] 21%/07 - 14%/08 – 7%/09 – gone/201021%/07 - 14%/08 – 7%/09 – gone/2010

Furniture, fixtures, and “all other” stay taxable [25%]Furniture, fixtures, and “all other” stay taxable [25%] REIMBURSEMENT to local governmentsREIMBURSEMENT to local governments

Held harmless through FY 2011Held harmless through FY 2011 Phased out from FY 2012 through FY 2018Phased out from FY 2012 through FY 2018

Proposed Budget – Tax Proposed Budget – Tax ReformReform

Personal Income TaxPersonal Income Tax Cut rates 21% over 5 yearsCut rates 21% over 5 years Revenue lost: ’06 – $ 325 M / ’07 – $690 MRevenue lost: ’06 – $ 325 M / ’07 – $690 M $2 Billion in reduced collections by 2010$2 Billion in reduced collections by 2010

Corporate Franchise TaxCorporate Franchise Tax Phased out over 5 yearsPhased out over 5 years Replaced with a “Commercial Activity Tax” Replaced with a “Commercial Activity Tax”

CATCAT Gross proceeds from sales - .26% rateGross proceeds from sales - .26% rate $1.5 Billion in collections in 2010$1.5 Billion in collections in 2010

Sales tax – no base expansionSales tax – no base expansion

Proposed Budget - Tax Proposed Budget - Tax ReformReform

Property tax rollbacks reimbursement REMAINSProperty tax rollbacks reimbursement REMAINS Real property Real property [10% - 907M] – but Commercial/Industrial removed[10% - 907M] – but Commercial/Industrial removed Owner occupied Owner occupied [2.5% - 128M][2.5% - 128M] Homestead Exemption / Senior citizen reduction Homestead Exemption / Senior citizen reduction [65M][65M] About $308 Million in About $308 Million in 2002 [28% of total collections]2002 [28% of total collections]

Compared to HB 58 125Compared to HB 58 125thth GA - GA - last draft last draft provisionsprovisions Tangible personal property tax eliminatedTangible personal property tax eliminated

local governments NOT reimbursed for lost revenue unless local governments NOT reimbursed for lost revenue unless supporting debt issuancesupporting debt issuance

About $463 Million in 2003 About $463 Million in 2003 [28% of total collections][28% of total collections] Corporate franchise tax LGF’s percentages rolled backCorporate franchise tax LGF’s percentages rolled back

To reflect BAT calculation’s “neutrality”To reflect BAT calculation’s “neutrality” Sales tax base expansionSales tax base expansion

County sales tax extended to expansionCounty sales tax extended to expansion LGF’s contributions increase from expansionLGF’s contributions increase from expansion

TheTheLocalLocal

GovernmentGovernmentFundsFunds

The LGFs in Jeopardy…The LGFs in Jeopardy…What’s At Stake?What’s At Stake?

Essential everyday local services:Essential everyday local services: Police/sheriff patrol & responsePolice/sheriff patrol & response Fire and EMS responseFire and EMS response Homeland securityHomeland security Sanitation, recycling, and yard waste Sanitation, recycling, and yard waste

servicesservices LibrariesLibraries Criminal justice/public safetyCriminal justice/public safety Parks and recreation programmingParks and recreation programming Winter road/street snow removalWinter road/street snow removal

The LGFs in Jeopardy…The LGFs in Jeopardy…What’s At Stake?What’s At Stake?

The services that:The services that:

Only local governments Only local governments provideprovide

Keep our residents safe and Keep our residents safe and secure in their homes and in secure in their homes and in their communitiestheir communities

LGFs Contributions to Local LGFs Contributions to Local Government’s RevenuesGovernment’s Revenues

Libraries – only source of funding for Libraries – only source of funding for 176 of Ohio’s 251 library districts176 of Ohio’s 251 library districts

Counties – up to 15% of the general Counties – up to 15% of the general fundfund

Municipalities – average 10% to 25%Municipalities – average 10% to 25% Townships – in many over 50%Townships – in many over 50% Park districts - significantPark districts - significant

A History of PartnershipA History of Partnership

Local Government Fund created in 1934Local Government Fund created in 1934 Responding to the Constitutional Amendment Responding to the Constitutional Amendment

of 1933 limiting unvoted property tax to 10 of 1933 limiting unvoted property tax to 10 instead of 15 mills [“inside millage”]instead of 15 mills [“inside millage”]

In HB 134 – creating Ohio’s first sales taxIn HB 134 – creating Ohio’s first sales tax Stated purpose for the tax was to “support Stated purpose for the tax was to “support

local government activities” local government activities” 40% of the 3% sales tax went to the LGF40% of the 3% sales tax went to the LGF

The Funds TodayThe Funds Today Local Government FundLocal Government Fund [1934][1934]

4.2% of the following state taxes4.2% of the following state taxes Personal income taxPersonal income tax Sales & use taxSales & use tax Corporation franchise tax Corporation franchise tax Public Utility tax Public Utility tax

Kilowatt hour tax – 2.646% Kilowatt hour tax – 2.646% Replace revenue lost due to electric Replace revenue lost due to electric

deregulationderegulation Dealers in intangibles tax – 62.5%Dealers in intangibles tax – 62.5%

Distributed by situs to the countiesDistributed by situs to the counties

The Funds TodayThe Funds Today Local Government Revenue Assistance FundLocal Government Revenue Assistance Fund

1989 [HB 71 – FY88/FY89 biennial budget]1989 [HB 71 – FY88/FY89 biennial budget] Provide additional support to local governmentsProvide additional support to local governments Provide different distribution formula from the Provide different distribution formula from the

LGF LGF .6% of the following state taxes .6% of the following state taxes [was to go to .7%][was to go to .7%]

Personal income taxPersonal income tax Sales & use taxSales & use tax Corporation franchise taxCorporation franchise tax Public Utility taxPublic Utility tax

Kilowatt hour tax – .378%Kilowatt hour tax – .378% Replace revenue lost due to electric deregulationReplace revenue lost due to electric deregulation

The Funds TodayThe Funds Today

Library & Local Government Support Library & Local Government Support FundFund Created in 1985 [HBs 291 & 146]Created in 1985 [HBs 291 & 146] Replace revenue lost from repeal of the Replace revenue lost from repeal of the

intangible property taxintangible property tax 5.7% of the personal income tax 5.7% of the personal income tax [originally 6.3%][originally 6.3%]

Major support for Ohio’s 251 library Major support for Ohio’s 251 library districtsdistricts

176 rely completely on the LLGSF176 rely completely on the LLGSF

Undermining the Undermining the “Partnership”“Partnership”

Contribution to the LGF from the major Contribution to the LGF from the major tax sources reduced from 4.6% to tax sources reduced from 4.6% to 4.2%4.2% ““Temporarily” done in 1991Temporarily” done in 1991 Reduced permanently in 1995Reduced permanently in 1995

Contribution to the LGRAF from the Contribution to the LGRAF from the major tax sources was to increase major tax sources was to increase to .7%to .7%

Contribution to the LLGSF from the Contribution to the LLGSF from the personal income tax reduced from personal income tax reduced from 6.3% to 5.7%6.3% to 5.7%

Undermining the Undermining the “Partnership”“Partnership”

No “credit” for revenues from:No “credit” for revenues from: 1 cent temporary sales tax increase1 cent temporary sales tax increase Kilowatt hour tax for FY 04/05Kilowatt hour tax for FY 04/05

Reclassification of taxpayers of the Reclassification of taxpayers of the dealers in intangibles tax dealers in intangibles tax [HB 405][HB 405] If dealer owned/affiliated with a financial If dealer owned/affiliated with a financial

institution or insurance company – all to institution or insurance company – all to statestate

Undermining the Undermining the “Partnership”“Partnership”

The FY 02/03 “freezes”The FY 02/03 “freezes” Originally at the FY 2001 annual level Originally at the FY 2001 annual level

for both years for both years Lesser of “freeze” or statutory formulaLesser of “freeze” or statutory formula 40 Million additional “correction”40 Million additional “correction”

The FY 04/05 “freeze”The FY 04/05 “freeze” Fixed monthly distributions for both Fixed monthly distributions for both

years at the amount received in FY 03years at the amount received in FY 03

Undermining the Undermining the “Partnership”“Partnership”

The Business Tax Phase-outs:The Business Tax Phase-outs:

Speed-up of elimination of the Speed-up of elimination of the personal property tax on business personal property tax on business inventoryinventory

Phase-out of reimbursement for Phase-out of reimbursement for $10,000 exemption on business $10,000 exemption on business tangible personal propertytangible personal property

Resources Reduced…Resources Reduced…over the last 2 Bienniumsover the last 2 Bienniums

Revenue “lost” to Local Governments: Revenue “lost” to Local Governments:

LGFs “freeze” LGFs “freeze” = = $ 340 Million$ 340 Million Business Taxes phase-outs Business Taxes phase-outs = $ 54 Million= $ 54 Million

Inventory Personal PropertyInventory Personal Property Tangible Personal Property ExemptionTangible Personal Property Exemption

TOTALTOTAL = = $ 394 Million$ 394 Million

And now…The Proposed Cuts…And now…The Proposed Cuts…by the numbersby the numbers

20% for Counties and Cities20% for Counties and Cities ““It’s more like a 2% cut to a city’s budget.” It’s more like a 2% cut to a city’s budget.”

Taft Spokesman Orest HolubecTaft Spokesman Orest Holubec

Or 2+% for countiesOr 2+% for counties 10% for Villages and Townships10% for Villages and Townships

““Would equate to a 2.3% cut” Would equate to a 2.3% cut” OBM Director Tom OBM Director Tom Johnson Johnson

5% for Libraries5% for Libraries Due to their exclusive reliance on LGFDue to their exclusive reliance on LGF

The “Appropriations”The “Appropriations”

Local Government FundLocal Government Fund From $ 662.2 Million ‘03/’05 to $ 538.7 Million ‘07 From $ 662.2 Million ‘03/’05 to $ 538.7 Million ‘07 At $ 568.6 Million in 1997At $ 568.6 Million in 1997

Local Government Revenue Assistance FundLocal Government Revenue Assistance Fund From $ 94.6 Million ’03/’05 to $ 77.4 Million ’07From $ 94.6 Million ’03/’05 to $ 77.4 Million ’07 At $ 81.3 Million in 1997At $ 81.3 Million in 1997

Library and Local Government Support FundLibrary and Local Government Support Fund From $ 458.4 Million ’05 to $ 430.5 Million ’07From $ 458.4 Million ’05 to $ 430.5 Million ’07 At $ 448 Million in 1999At $ 448 Million in 1999

The State’s “Savings”The State’s “Savings” Fiscal Year 2006Fiscal Year 2006

At the “freeze” level = $ 180 MillionAt the “freeze” level = $ 180 Million With the additional cuts = $ 103 MillionWith the additional cuts = $ 103 Million

ON THE FORMULAON THE FORMULA $ 283 Million $ 283 Million Fiscal Year 2007Fiscal Year 2007

At the “freeze” level = $ 235 MillionAt the “freeze” level = $ 235 Million With the additional cuts = $ 164 MillionWith the additional cuts = $ 164 Million

ON THE FORMULAON THE FORMULA $ 399 Million $ 399 Million For the Biennium $ 700 MillionFor the Biennium $ 700 Million

In Summary…In Summary… The Good:The Good:

Cuts not effective until Jan 1, 2006Cuts not effective until Jan 1, 2006 Reimbursement for Property Tax RollbacksReimbursement for Property Tax Rollbacks Business TPP elimination - Held harmless 5 yrsBusiness TPP elimination - Held harmless 5 yrs

The Bad:The Bad: What “statutory formula”?What “statutory formula”? EPA solid waste disposal fee increasesEPA solid waste disposal fee increases

$1.75/ton for taking EPA off GRF$1.75/ton for taking EPA off GRF $1.00/ton for DNR Recycling & Litter Prevention$1.00/ton for DNR Recycling & Litter Prevention

Indigent Defense reimbursement cut 1.2 MillionIndigent Defense reimbursement cut 1.2 Million No Sales Tax base broadeningNo Sales Tax base broadening

The REALLY UGLY - Local Governments share The REALLY UGLY - Local Governments share disproportionately in the cutsdisproportionately in the cuts