Saturday, March 30, 2002

Change in Ohio tax law haunts state

By Andrew Welsh-Huggins
The Associated Press

        COLUMBUS, Ohio — State budget officials struggling to address a $1.2 billion deficit may have underestimated the impact of a 1999 change in Ohio law on state revenue.

        The change capped at $150,000 the amount of taxes a business had to pay on its net worth.

        The effect of the change means a decrease in revenue from the corporate franchise tax, a drop magnified by a recession.

        Officials trying to explain why they didn't see the $1.2 billion deficit coming months ago fingered the net-worth change as one explanation.

        “We thought we had taken it fully into account, but maybe we didn't,” said Tim Keen, assistant state budget director.

        Though budget officials knew in October about the change, they say this was the first time they had calculated revenue in a recession with the change in place.

        “It's an explanation for why we might have missed as badly as we did,” Mr. Keen said. “The estimating environment was dramatically different from what it had ever been in the past.”

        Thursday, Mr. Keen's boss, state budget director Tom Johnson, called the loss of the net-worth tax money “a significant contributor” to the current budget deficit.

        But both Mr. Keen and Mr. Johnson said the primary culprit remains an economy that was worse than the evidence last fall indicated.

        “This is definitely a very serious recession we're in,” Mr. Johnson said.

        Rep. Dean DePiero of Parma, the top House Democrat, said officials should have considered the net worth change in October, when the $1.5 billion deficit was uncovered.

        “It's somewhat of a blunder on their part,” he said Friday. “If that impact had been known back then, the approach would have been different in solving the budget crisis.”


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