Ohio Gov. Bob Taft called for new taxes and significant cutbacks in existing programs in services during his State of the State speech to the General Assembly Wednesday. He said the measures are needed immediately to deal with a $720 million deficit in the current state budget - a deficit that is expected to be larger in the next biennium.
Below are some of the governor's key points, with background on how we got to this point, why he has chosen the path he proposes and what the impact could be.
From the speech: "The slowed economy and increased spending for Medicaid means we are facing a deficit for the current fiscal year of $720 million. The magnitude of the deficit and the short time left in the budget year will require immediate and drastic action."
Background: Ohio continues to struggle in its recovery from a nationwide recession. Mr. Taft and the Legislature already have authorized $3.4 billion in budget cuts and tax increases to balance the 2002-2003 budget, as required by law. The Medicaid budget, which provides medical care for low-income Ohioans, has increased from $6 billion in 1998 to a projected $10 billion by June 2005. But freezing Medicaid spending could affect more than Medicaid patients, said Mary Yost, a spokeswoman for the Ohio Hospital Association. Reductions in Medicaid could force hospitals, often one of the largest employers in their communities, to lay off staff, reduce the number of procedures they offer or even close, she said.
From the speech: "I'll propose to freeze (Medicaid) reimbursement rates for all providers, require a new formula to pay for long-term institutional care, eliminate many optional services and change eligibility criteria that will significantly affect the number of adult Ohioans receiving Medicaid services."
Background: Changes to the formula for institutional care will escalate a fight between the state and Ohio's nursing homes, which are in line for an automatic increase in their state subsidy. The nursing homes have powerful allies in the legislature and are likely to exert enormous pressure to prevent these cuts.
From the speech: "I propose we raise additional dollars this fiscal year by increasing taxes on tobacco and alcohol, accelerating the collection of the sales tax and other actions. I also request the authority to tap the remainder of our rainy day fund to help offset mandated increases in Medicaid spending."
Background: The Legislature, under bitter protest from anti-tax Republicans and with no support from Democrats, raised the state cigarette tax from 24 cents to 55 cents a pack last year to help close a deficit. Another increase would bring Mr. Taft closer to his original proposal of a 50-cent-per-pack increase. That, along with increases on alcoholic beverages, would mean more money for the state treasury from targeted taxpayers while leaving alone the income and sales taxes. Many retailer fear the higher taxes will result in a loss of business. That is particularly true in areas such as Greater Cincinnati, which border states that have much lower taxes on these products.
No pay raises
From the speech: "Many state programs will receive zero growth in their budgets; others will be reduced. Still others will be eliminated. We're asking state workers to contribute by not taking a pay raise."
Background: The state's largest public employees union, the Ohio Civil Service Employees Association, representing 37,000 of the state's 59,000 workers, is negotiating a contract with the state. The union has asked for raises totaling 11 percent over three years. The governor thanked the workers for their efforts, but those thanks will offer cold comfort in the souring economy.
Expanding the sales tax
From the speech: "We'll broaden the base of the sales tax to include a wider array of services, conforming to the contours of our modern economy."
Background: First proposed by Senate Democrats in response to the 1997 Supreme Court ruling on school funding, it could add the sales tax to services such as those provided by lawyers and accountants. Mr. Taft was not specific on how the sales tax would be broadened. In addition to lawyers and accountants, this "broadening" may include such services as nail salons, and taxes on carry-out food.
From the speech: "I'll establish a Blue Ribbon Task Force on Financing Student Success, composed of leaders from education and business, policymakers, teachers and parents. I will charge the task force with proposing a better way of funding schools - a way that provides predictable funding, is affordable, spends money effectively and supports student achievement."
Background: The Ohio Supreme Court in December ruled that Ohio's school funding formula remains unconstitutional. However, the court ended its jurisdiction in the case, lessening the pressure on Mr. Taft and the Legislature to enact new spending programs for primary and secondary education. After a decade of litigation on this issue it is difficult to imagine the task force will find some magic new formula, but the governor suggested after the speech that weariness may spur inspiration.
From the speech: "Higher education is more important to our economic future than ever before, yet our resources are limited. We will increase funding for colleges and universities in our budget, but we must achieve a greater return on our investment."
Background: M. Taft has invested much time and effort in his Third Frontier high-tech development program, and a commitment to higher education is part of his plan. Primary and secondary education took precedence over colleges in his first two budgets,
partly because of the Supreme Court rulings. Stopping the "brain drain" of bright students and researchers to better out-of-state programs is crucial to developing new technologies and industries in Ohio.
From the speech: "My budget will call for new transportation revenue. We'll ensure a stable base of funding for road and bridge construction, even if no more federal money is forthcoming."
Background: Dollars are scarce for rebuilding Ohio's aging infrastructure and Mr. Taft is looking for new sources of revenue. Proposals to raise the state's 22-cents-a-gallon gasoline tax in recent years were blocked by the opposition of Senate President Richard Finan, who no longer is in office because of term limits.
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