Tuesday, June 10, 2003

State's deficit keeps growing

Budget work hampered by worsened projections

By Spencer Hunt
Enquirer Columbus Bureau

COLUMBUS - Ohio lawmakers who already support billions in new taxes to balance a state budget will search this week for ways to cut - or raise up to $1 billion more.

As budget talks enter their final phase, Ohio's economic decline has erased hundreds of millions in tax dollars that legislators hoped to collect and spend over the next two years.

Gov. Bob Taft's budget office has blamed lower-than-hoped-for income tax returns for creating a $200 million deficit this month. That's spurred speculation that the two-year budget may be $1 billion short.

Whatever its size, the new deficit will dominate budget talks set to begin Wednesday between House and Senate lawmakers. They were already predicting a rough road to reach a consensus between a $48.6 billion plan the House passed in April and a $49.3 billion plan senators passed last week.

"It's going to be a lot tougher," Senate President Doug White, R-Manchester, said. "It's going to be very contentious."

At stake are the amount of taxes all Ohioans pay; hundreds of millions in tax dollars that go to public schools and universities; and millions more spent on care for the poor, elderly and disabled.

The debate also will include a controversial proposal that would place video slot machines at Ohio's racetrack casinos.

Even before the deficit fears began, House Speaker Larry Householder, R-Glenford, warned that his Senate colleagues were spending too much.

"I think $49.3 billion in spending is going to be an issue, especially in the economy we're faced with right now," Householder said.

Comparing plans

Total cost$48.7 billion$49.3 billion
Education$14.4 billion$14.7 billion
$4.8 billion$5.0 billion
Mental health$1.07 billion$1.08 billion
$700 million$703 million
Sales taxTemporary 1-cent increaseTemporary 1-cent increase
Video slotsCould replace sales tax increase which would expire July 1, 2005.Voters could pass a constitutional amendment creating slots in November.
Source: Ohio House and Senate budget documents

Declining sales and income tax revenues have forced lawmakers to pass no less than three budget fixes to the current spending plan.

Lawmakers in both chambers have agreed to a hefty tax increase to fund state operations over the next two years. A penny increase in the state's five-cent sales tax would raise up to $2.5 billion over the next two years.

The House and Senate proposals differ on how long the increased sales tax would stay in place.

The House plan would let voters eliminate the tax after a year if they approve an alternate plan that would create slot machine casinos at the state's seven racetracks.

The Senate would keep the tax until July 1, 2005. While a slot machine proposal would still be offered to voters in November, it wouldn't be linked to the sales tax or state spending.

Because the sales tax would raise more money than slots could, the Senate would spend about $300 million more on schools, and about $200 million more on colleges and universities than the House proposed in April.

That still means a spending rollback for education. Taft's original budget proposal would spend about $100 million more each on schools and higher education over the two years.

At the urging of Democratic lawmakers, the Senate budget also preserves funding for social programs that pay for day care services and health coverage for thousands of working poor families.

Decisions like that, which would cost $150 million over the next two years, helped lure eight of the Senate's 11 Democrats to vote in favor of the plan.

Republicans, who control the 33-member chamber, needed Democrat support because conservatives refused to vote for higher taxes.

House Republicans are expected to question all of these Senate initiatives in the joint budget discussions. Some will push to restore the funding cuts they've already approved for schools, universities and health programs.

"I like what the Senate did," said Rep. Bill Seitz, R-Green Township. "I don't think we can afford what the Senate did."

Democrats, who have become increasingly important in the budget talks, want to see business taxes increase with the state sales tax. They also argue that more, not less, needs to be spent on health care and day care services, saying it doesn't make sense to cut back when more Ohioans are looking for work.

"It's just good policy," said Rep. Ed Jerse, D-Euclid, who is likely to become a key voice for Democrats in the budget talks.

Democrats back a plan Taft proposed in January that would close corporate tax loopholes and make other changes to raise more than $700 million over the next two years.

Taft will lobby for those changes during the House-Senate negotiations. Spokesman Orest Holubec said the deficit puts those changes back on the table.

That proposal is still a tough sell in the legislature, where Republicans say higher business taxes will encourage more layoffs and lower tax revenues.

Another issue is an estimated one-time $770 million windfall in federal Medicaid funds - Ohio's share of tax-relief bill compromise reached between Congress and President Bush.

Senate and House Republicans wanted to put most of that money into rainy day reserves - meaning it could only be spent in case of an emergency. Sen. Bill Harris, R-Ashland, acknowledged that more of that money may have to be spent.

The need to look for more money or more cuts - or both - will likely extend the budget negotiations near the June 30 end of the fiscal year. Lawmakers had hoped to quickly pass a compromise budget Taft could sign well before that date.

Householder said he and White and Democratic legislative leaders will have to work harder to get rank-and-file lawmakers to "buy in" to a compromise plan.

"You're talking about a couple of very fragile majorities in the House and Senate," Householder said.

White agreed, adding that the budget's bottom line cost isn't as important as finding a plan that can pass.

"For me to negotiate just on a figure on a budget that I can't get a consensus on is not my job," White said. "My job as leader is to make the deals that I think can get a consensus vote."

E-mail shunt@enquirer.com

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