Stickland's Reality Deficit

Governor Strickland announced $540 million in budget cuts to the State Budget to the chagrin of local governments and school districts all around the State. They know that the fiscal pain unlike Reagonomics will trickle down to bite them in the budgetary asses. Large counties like Cuyahoga are already contending with budget deficits in 2008 ($20 million) and onwards and this latest bad news will compound those troubles. These cuts are in addition to the first round($733 million) made this spring.

The state's Local Government Fund that reallocates State GF revenue down to counties, cites, schools and libraries is probably not in good shape. That translates into less dollars available for local services like public safety, education and social programs. According to the State Budget director, Pari Sabety all major revenue sources are off target (from GONGWER):

Director Sabety said that an ominous sign within the monthly revenue reports is the downward trend in personal income tax withholdings, which she described as "a significant negative indicator."

Ohio's dire budget predicament, while not unique among the states (see separate story), has also been underscored by recent reports on unemployment, the housing market, and other economic indicators.

"Every indicator we look at is pointing downward at this point in time," Ms. Sabety said.

The shrinking LGF allocations could be aggravated by reduced State funding in other areas to local governments and seriously hamper efforts to reign in budgets deficits at the local level. This could be referred to as a tail spin.

Our current governor is held hotage by a sinking economy and the bad tax policy choices of previous legislative sessions. One of the chickens that has come to roost is the 21% income tax reduction that was phased in over the past several years. Ted is now straddling the line between fiscal restraint and hard right taxcut mania. He has had to acknowledge the damage to the State revenue picture but admits he will not tamper with the near suicidal reduction in income tax rates, not even a temporary freeze.

"Without a doubt, if the tax reform had not taken place we would have had significant more resources for this biennial budget," he said, adding that under some estimates the cuts in that package may have reached $1.9 billion to this point. "Having said that, I have embraced the tax reform because I do believe that it is important to Ohio's future that our state be a state that is attractive to those who would invest and create jobs."

On top of that change the Commercial Activity Tax created to replace the tax on inventory and equipment lost a large chunk of its tax base last week. Raising taxes is not popular but the ability to cut State budgets will continue to negatviely impact local governments and their constituents (you and me). This puts the State's top Dem in a real bind. He will now have to fend off attacks from up and coming State Auditor Mary Taylor (again from GONGWER)*:

"The announcement today by Governor Strickland concerning the continued deterioration of the financial condition of the state of Ohio is troubling," Auditor Taylor said in a statement. She said that while the initial budget adjustments made last February entailed some cuts, "it also included a number of questionable fiscal management proposals such as Keno, delaying program expenditures from one fiscal year to the next and short-term cash management actions."

She and other top State Republicans will be prepping the battle field for the next round of state wide elections and the even the gubernatorial contest in 2010. This crowd is touting the Mechagodzilla of all tax cuts, a plan to eliminate the state income tax all together. This plan pushed by Blackwell et al at the Buckeye Institute has had some media exposure but limited examination of the consequences. The backers think the magic of the free market and the CAT (the one with an eroding base) will more than make up for the lost revenue.

Ted please come back to reality and consider freezing the income tax reduction. As unpopular and vunerable as it may make you, putting the brakes on for now could do some good. highlighting the weakness of the current plan could help demonstrate how supersizing the income tax cuts would be even more devastating to Ohio than the plan that is already in place.

* Sorry no links to GONGWER, it is a subscription only service.

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