Sunday, December 24, 2000

Possibility of recession is debated

By Spencer Hunt and Patrick Crowley
The Cincinnati Enquirer

        After nearly a decade of good fiscal times, government bean counters in Ohio, Kentucky and many other states suddenly find themselves scrimping and penny-pinching.

        A slowing national economy already has shut down dot-com companies, sent stock prices tumbling and prompted a new wave of employee layoffs. As economists flirt with the word “recession,” the impact has started to creep into state, county and city treasuries.

        While states ponder zero-growth budgets and cutbacks, county and city officials in Greater Cincinnati already have raised some fees, shut down services and dropped plans to hire new workers. That's a big switch for governments that mere months ago had as much cash as they needed — and then some.

        Things have been so good that Ohio refused to collect a total of $1.7 billion in personal income taxes over the past four years and still managed to keep big budget surpluses. With sales-tax revenues $100 million below projections, budget director Tom Johnson says he's worried about the next two years.

        “We have not had low growth like this since the early 1990s,” Mr. Johnson said, referring to the last time the state faced an economic recession.

        In Hamilton, officials built a city hall, restored old downtown buildings, and hired 30 to 50 people. But business layoffs and a projected $1.5 million budget deficit will force three pools to close, keep 20 jobs vacant and delay some street and housing projects.

        “We're going to have to tighten our belts,” said City Manager Steve Sorrell.

        Those two examples reflect a national trend that has reversed many governments' financial fortunes.

        As many as 15 Midwestern and Southeastern states face lower-than-expected tax revenues, according to a new survey from the National Association of State Budget Officers.

        Income tax revenues remain strong in Ohio now, but Mr. Johnson said the sales tax dip may indicate slower revenue growth in all taxes next year. Faced with increased Medicaid costs and school funding reform demands, he said most agencies should expect minimal increases or cuts.

        “It means employees won't be replaced when they leave or retire,” Mr. Johnson said. “Maybe a new technology an agency wanted to (buy) will have to be delayed until next year.”

Slowdown in Kentucky
        Kentucky's sales- and income-tax revenues also have slowed.

        In the first five months of Kentucky's fiscal year, the General Fund has grown 4.0 percent. But estimates count on a 5.2 percent growth rate.

        “We are concerned about the effects of the potential economic slowdown and its impact on General Fund revenue growth,” state budget director James Ramsey told a legislative committee on Dec. 9.

        No one calls the situation a crisis. In fact, many officials in Greater Cincinnati remain upbeat.

        “When did (the economy) slow down?” asked Ivan Frye, treasurer of Kenton County, the largest in Northern Kentucky. “We're growing. We're in good shape.”

        Hamilton County Administrator David Krings said he's noticed a slight dip in sales-tax revenues amounting to $1 million. That did not prompt any cuts in the $1.8 billion budget county commissioners passed Wednesday.

        “It's something for us to keep an eye on,” Mr. Krings said. “Our riverfront development is linked to growth in the sales tax.”

Cutting city hall jobs
        Unexpected drops in income-tax revenues have sparked some concerns for Cincinnati City Manager John Shirey. The budget City Council members approved will cut 125 of the city's 8,000 jobs over the next two years, and include minor fee hikes for pool licenses, golf green fees and tree assessments.

        Many of those cuts were the result of council mandates, not lower revenues, Mr. Shirey said.

        Other cities' fortunes are more directly tied to jobs and the in come taxes they produce. Amberley Village lost $800,000 a year when Gibson Greetings laid off workers after it was bought by Cleveland-based competitor American Greetings.

        The village won't lose any of its 31 employees, but they will feel the loss in reduced raises next year, said Financial Administrator Margie Crowley.

        In Hamilton, Mr. Sorrell predicted a fiscal rebound for the city if it is able to revive an industrial complex International Paper shut down.

        “There are lookers and there are callers, but we don't have anyone on the dotted line,” he said. “It could be a crisis if this continues for a protracted period of time.”

        In Erlanger city officials say they have no worries.

        “There would have to be a fairly dramatic downturn for us to be dramatically affected,” said City Administrator Bill Scheyer.

        The economy apparently is still booming in Mason, a growing Warren County city that adds five to seven new businesses a year.

        The city plans to hire five new employees and build a new $18 million city hall, said City Manager Scot Lahrmer.

        “The city is in a growth mode and we make the growth pay for itself,” Mr. Lahrmer said. “I would not classify our budget as austere at all.”


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