Ohio Tax-Cut Delay Means Less For Taxpayers

COLUMBUS, Ohio -- Ohioans will pay between $2 and $2,000 more in 2009 taxes, on average, under a compromise budget deal expected to clear the Legislature on Thursday.

The agreement to delay a scheduled income tax cut fills an $850 million budget gap while preserving state funding to school districts. Educators and community leaders had spent the last week complaining loudly about the financial hardship they faced as a result of the budget impasse.

The deal reached late Wednesday night resolved what had been increasingly tense negotiations between Gov. Ted Strickland and Democratic lawmakers on one side, and Republicans loath to suspend a tax cut on the other.

On Thursday, a small group of Republicans is expected to support Strickland's plan to delay the final round of income tax cuts set in motion in 2005. In return, Democrats agreed to a pilot project to test proposed construction contracting changes they believe aren't ready to be implemented on all public projects. The agreement secured enough votes to get the deal out of the House and Senate, and to the governor's desk.

A Senate committee is expected to approve the plan Thursday, followed by votes on the House and Senate floors.

The deal impacts the wallets and pocketbooks of Ohio taxpayers, but not by much, many lawmakers would argue. It postpones for two years the final installment of what was to be a 21-percent income tax cut begun under Strickland's predecessor, Bob Taft.

The lowest 20 percent of earners, making $18,000 or less, will have to pay only $2 more for 2009 than they would have had they received the 4.2 percent reduction in the tax rate, according to the Institute on Taxation and Economic Policy. The top 1 percent, earning $319,000 or more, will pay $1,980 more. And the majority of Ohioans - those in the middle 40 percent - earning from $32,000 to $76,000 a year, will pay an additional $37 to $69.

Without the deal on the tax plan, or an alternative proposal to cut $850 million from other state programs, the money would have been taken from school districts. Many had feared a direct impact on the classroom because of fewer teachers, larger classes, and a reduced ability to provide textbooks and supplies.

Republicans opposed to the tax cut delay because they said not delivering the money to taxpayers as planned would negatively impact the economy. Democrats said the state spending cuts that would result instead would be more harmful.

Strickland and his legislative allies have insisted the tax change is a delay, saying they have the intention of implementing the cut for the 2011 tax year. But the state faces a potential multibillion dollar deficit due to the expected absence of federal stimulus money, leading some to believe the delay may be permanent.

"While this fills the hole for now, we have a gigantic, yawning gap ahead in the next budget," said Zach Schiller, research director for Policy Matters Ohio. "Even just continuing this, we would have billions of dollars in additional cuts and revenue needed."

Strickland said Thursday that he and other governors will seek additional federal money in the coming years if the economy does not get considerably better.

The governor said he has been committed to the tax reductions, and insisted the tax cut delay really is a delay.

"I never guarantee what I might do under what circumstances they may occur," Strickland said. "This is a temporary delay. I have no intention of making it anything other than a temporary delay."

The $850 million budget gap was created when the Ohio Supreme Court sidelined an earlier budget-balancing plan: legalized video slot machines at racetracks. The court agreed with the legal argument of LetOhioVote.org, which argued that voters are entitled to a referendum on the new machines. That vote could take place next year.

STRICKLAND'S STATEMENT ON BIPARTISAN EDUCATION BUDGET COMPROMISE

Ohio Governor Ted Strickland today issued the following statement after achieving a bipartisan agreement on H.B. 318 with House Speaker Armond Budish, Senate President Bill Harris and Senate Minority Leader Capri Cafaro:

“Across the country, some states have chosen to slash education budgets in an attempt to make it through the recession. Here in Ohio, investing in education is the cornerstone of our plan to rebuild Ohio’s economy from the ground up. We have again overcome political differences to achieve a bipartisan agreement to balance the budget and protect our schools from devastating cuts.

“This compromise will avoid thousands of teacher layoffs, school building closures and the elimination of athletic programs in our schools. And we can now refocus our efforts on competing for federal Race to the Top resources that, along with our education reform plan, will improve our students’ ability to compete with students anywhere in the world.

“Nearly three months ago, a state Supreme Court decision opened an $851 million hole in education funding. We were faced with three options to fill the budget hole. One option was to raise taxes. A second option was to cut $851 million budgeted for Ohio schools. A third option was to freeze state income tax rates at the 2008 level, postponing the final 4.2 percent reduction while leaving in place the rate cuts made to date.

“I deeply appreciate the business and education communities, as well as libraries and human service organizations, for their vocal support of the common sense solution to temporarily postpone the last phase of income tax reductions. Ohio families and businesses will continue to receive a $1.8 billion tax cut this fiscal year because of the broad-based tax reforms we shepherded through the most difficult economic environment in 80 years.

“This compromise also advances several important initiatives. After we brought construction reform to the forefront, it will be undertaken in a demonstration capacity at three University System of Ohio institutions. We are also meeting our commitment to ensure needed mental health services continue to support Ohio’s most vulnerable citizens.

“With bipartisan cooperation, we are making steady progress toward a new, more competitive Ohio.”

Framework Of The Bipartisan Compromise

Temporary Postponement of Tax Rate Reduction to Protect Ohio Schools

The legislature will postpone the last part of the scheduled income tax reduction by freezing income tax rates so they remain exactly the same as last year. Ohio taxpayers will continue to pay a tax rate 16.8 percent less than in 2004. Ohio’s schools will receive approximately $844 million in resources for the biennium.

Construction Reform Demonstration Projects

The Chancellor of the Board of Regents will establish criteria to determine three capital projects at University System of Ohio institutions to utilize alternative construction management methods, to serve as a demonstration of construction reform.

All-Day Kindergarten

All-day kindergarten remains a requirement for every Ohio school district beginning in the 2010-11 school year. To support districts that may have fiscal or other challenges to successfully implement all-day kindergarten next year, a new requirement in law will permit districts to request and receive a waiver, but only if a resolution from the local School Board of the district provides a justification for a delay.

Evidence suggests all-day kindergarten benefits students, especially the most vulnerable and at-risk. In a recent Ohio Department of Education survey of Ohio’s school districts, only 150 respondents indicated that they would request a waiver to delay implementing all-day kindergarten.

Potential Additional Resources For Non-public, Chartered Schools

Non-public, chartered schools may benefit, up to FY 2009 spending levels, from lapses in the state budget. While the lapses may come from anywhere in the budget, the transfers to non-public schools cannot total more than the amounts lapsed in the GRF line items of the Ohio Department of Education’s budget.

Corrections from HB 1:

Mental Health Services Fix

The compromise will correct a legislative drafting error from HB 1, ensuring that $14.7 million in mental health funds are directed to the correct fund for community mental health services.

The Ohio State Employment Relations Board

In HB 1, the Ohio State Employment Relations Board (SERB) and the Personnel Board of Review (PBR) merged backroom offices without adequate funds to successfully complete the merger. The compromise will provide $2 million to SERB from the state administrative fund at the Ohio Department of Job and Family Services.

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