Thursday, January 23, 2003

Taft wants tax hikes; threatens major cuts


Actions 'painful' but necessary, he says

By Debra Jasper
and Spencer Hunt
Enquirer Columbus Bureau

[photo] Ohio Gov. Bob Taft gives his State of the State address Wednesday.
(Associated Press photo)
| ZOOM |
COLUMBUS - Gov. Bob Taft used his State of the State speech Wednesday to warn legislators that they must raise taxes next month or he'll be forced to slash state aid to schools, universities and the elderly.

"The actions I'm asking you to take will be painful," the governor told a joint session of the Ohio House and Senate. "But the consequences of inaction are unacceptable."

Mr. Taft wants to double state alcohol taxes and increase cigarette taxes by 45 cents a pack by March 1 to help plug a short-term $720 million budget deficit.

He is also pushing for sales taxes on more services and for a new "transportation tax" - which legislators interpreted as a new gas tax - to pay for roads and bridges.

The governor also lobbied to:

• Lower tax rates for certain corporations but broaden the number of companies that pay those taxes.

• Freeze pay for unionized state workers.

• Close at least one prison and one or two institutions for the mentally retarded.

• Cut spending on Medicaid, the health-care program for the poor and disabled.

FULL SPEECH
Full text of Gov. Taft's State of the State address
TAFT'S PROPOSALS
To balance the current budget, Gov. Bob Taft on Wednesday:
• Signed an executive order cutting agency budgets by $121 million.
• Asked the legislature to reduce local government payments by $30 million.
• Asked the legislature to raise $160 million in new revenue by raising the taxes on cigarettes by 45 cents a pack and doubling the tax on alcohol.
• Proposed raising $288 million by accelerating electronically filed sales tax collection.
• Proposed using the remaining $65 million in the rainy day account.
• Suggested using $21 million in so-called rotary accounts and using $35 million from the unclaimed funds account.

To address 2004-2005 budget, which begins July 1, Mr. Taft will:
• Reduce or freeze growth to state agency budgets.
• Contain the growth of Medicaid by freezing reimbursement rates for all providers, requiring a new formula to pay for long-term institutional care, eliminating many optional services and changing eligibility criteria that will affect the number of Ohioans receiving services through Medicaid.
• Reform Ohio's tax system to make it "more fair, more simple and more aligned with our modern economy."
• Call for new transportation revenue, such as an increase in the gasoline tax, to continue rebuilding and major new construction projects.

"If last year's budget gap felt like a gale force wind," the governor said, "this year's budget crisis will feel like the `Perfect Storm.' "

Majority Republican lawmakers weren't blown away by Mr. Taft's ultimatum.

All State Rep. Timothy Grendell, R-Chesterland, said he heard in the governor's speech was "taxes, taxes, taxes."

Mr. Grendell said the state can't afford all those tax increases. "There is plenty of room to get the waste out of spending in Ohio," he said.

Legislative leaders acknowledge they are far from agreeing to the governor's plan. "The House is going to work very hard to meet those deadlines, but you never know what bumps in the road you are going to face," House Speaker Larry Householder, R-Glenford, said.

Mr. Taft said painful sacrifices are just beginning. He said in the next fiscal year, starting July 1, state reserves will be gone and one-time revenues will have vanished. Some estimates show the state will face a $4 billion deficit.

In a speech witnessed by grim-faced lawmakers who offered little applause, the governor explained that over the last six years Medicaid costs alone will have increased 75 percent to $10 billion a year by the next budget. He said the state must enact "tough measures" to slow its rate of growth.

Mr. Taft didn't offer specifics but officials have discussed cutting off payments for items such as ambulance runs, eye exams and dental care.

"Few Americans know it, but Medicaid is now bigger and more costly than Medicare," Mr. Taft told legislators. "Something must be done."

In addition to those measures, Mr. Taft said the state in 2005 would reform its personal income tax system. He again declined to give specifics, but said most taxpayers would pay less and the state would eliminate tax liability for more than 500,000 low-income Ohioans.

He said he has already cut the state budget by $1 billion in the last 27 months and reduced the workforce by 3,000 but the budget can't be balanced by cuts alone.

"There will be those who will not like everything I propose. There are those who will work overtime to protect their special interests," Mr. Taft said during his speech.

Moments after he spoke, special interest groups and legislators on both sides of the political aisle were lining up to criticize the governor's proposals.

State Rep. Michelle Schneider, R-Madeira, said she's unhappy that Mr. Taft didn't mention the elderly but wants more money for the Third Frontier, a plan to bring in more high-tech companies.

"I am not going to give money to the Third Frontier unless we take care of the frail elderly who built the First Frontier," said Ms. Schneider, who is a part owner of a nursing home.

Democrats say that if the governor wants their support he will have to take their budget priorities seriously. Sen. Mark Mallory, D-Cincinnati, said Republicans so far just want Democrats to approve a plan they had no hand in creating.

"If you want participation from Democrats that doesn't mean you lay out a plan and ask us to support it," he said. "It means you ask us to sit at the table as equal partners and help you design a plan."

The Taft plan also failed to impress union and business leaders.

Peter Wray, a spokesman for the 37,000 employees who make up the Ohio Civil Service Employees Association, said the state should crack down on what he considers misspending in private contracts and close privately run prisons before looking to state workers to bear the brunt of budget cuts.

Daniel Navin, a spokesman for the Ohio Chamber of Commerce, blamed a big part of the budget crunch on state spending that increased at a rate of more than 2.5 times the rate of inflation during the past decade.

"The state has been spending at an unsustainable rate, as if a downturn in the business cycle would never occur," Mr. Navin said. "If we had reined in spending in the 1990s and kept it at inflation we wouldn't be having this demand for new revenue and complaints about the tax code."

Both Mr. Householder and Senate President Doug White, R-Manchester, said the governor's demand that the legislature take action by the end of February puts them on a very aggressive schedule.

"It's difficult to say we're for or against anything (in the governor's plan) right now," Mr. Householder said.

Mr. White, a tobacco farmer from Adams County, predicted the debate over proposed tax hikes would be fierce in the coming weeks. He, too, expressed doubts about some of the governor's proposals.

"As everybody in this room knows, I abhor tobacco taxes, as did my ancestors," he said, then adding, "but this is a time for tough decisions."

Lawmakers already raised cigarette taxes in July from 24 cents a pack to 55 cents. Estimates show a new 45-cent tax would bring in an extra $140 million by June 30.

Doubling the taxes on beer, wine and liquor would produce an extra $18.7 million. The change would increase the 10-cent tax on a six-pack of beer to about 20 cents.

These increases would also help Mr. Taft fix next year's budget. The governor's budget office estimates these higher "sin taxes" would bring in about $600 million over the next two fiscal years.David Monroe, 45, of Hamilton grumbled about the notion of raising taxes on cigarettes and alcohol.

Mr. Monroe, a customer of the Certified gas station at 701 High St., Hamilton, said he and his wife both smoke. They've switched to a bargain brand already because of the rising cost of cigarettes.

A machine operator, he says there have been cutbacks at his work and tax increases would hurt the budget of someone like him, who likes to unwind with a cigarette and a cold brew.

"I've got a 12-pack in the fridge right now," he said.

E-mail djasper@enquirer.com and

shunt@enquirer.com




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