Tuesday, June 16, 2009

The Fifteen Minute Budget Solution

Lawmakers in the Ohio General Assembly are just about done freaking out about the number $3.2 billion. Do you know how far 3.2 billion Tim Grendells stacked on top of each other would reach? Once the legislators have regained their footing they will have about fifteen days to reduce the projected shortfall in the FY2010 budget by that amount, seems like a daunting task. I sure hope that doesn't effect my life.

The gigantic budgetary gap caused in part by a cliff diving economy and a budget analysis apparatus instructed to keep things rosy will have to be closed within a short amount of time. The General Assembly conference committee has until the end of the month to get a balanced and realistic budget to the governor. How does a such a massive undertaking get completed on time? I am suggesting that rather than fifteen days the whole thing can be solved and wrapped in neat bow in fifteen minutes. Sounds facetious and politically improbable doesn't it?

Yes to Cuts

There will invariably have to be deeper cuts to programs and staffing. Perhaps the idea of an enforceable and State-wide earl retirement program could achieve savings within the two year horizon of the FY2010 budget. Mandatory furloughs are also in order. The State Treasurer and Attorney General have announced a steep two week furlough program all employees. Holy Mary Taylor and Jennifer Brunner are also "considering" a furlough measure for their respective offices.

Staffing takes up a large portion of administrative budgets in government entities. The need to further reduce staffing through layoffs will have to be considered. This will impact delivery of
services. The remainder of the cuts will have to be to programs. Everyone has their pet projects so agreeing on additional program will not be easy.

Jim Sigel's piece in today's Dispatch points out the difficult nature of whittling down the State budget to a discretionary core of programs ripe for cuts. Still, more reductions will have to be attained to meet the target. Those will most likely be done in a back room away from prying eyes of media and advocates.

In the end I don't see more than a few hundred million being cut from the existing lean budget proposal. This budget process will not be used as a de facto method for deconstructing State government into a model for Tea Party visionaries.

Yes to Creative Finance

Before moving on to revenue I should dedicate some space to what I call creative finance. No, that would not include investing in rare coins or drilling the shit out of the State parks. This category of budget fixes is reserved for creating new revenue sources or using financial tools to create new payment streams.

The most viable solutions in the near term are casino gambling and securitization of assets. Casino gambling has been bandied about for years and invariably gets voted down by the legions of puritans that inhabit Ohio's towns and villages. Creating the legal framework for casino gambling, one that focuses on gaming districts in a few select large urban centers could pay off. Siegel uses an estimate of $200 million over two years of ongoing revenue for this source.

We could dust off the plan to lease the Ohio turnpike. The last attempt to securitize this asset was championed by political loser and right-wing blowhard Ken Blackwell. Under the umbrella of a rational and carefully reviewed plan the State could realize a substantial revenue stream (billions) for a long-term lease agreement of the tollway.


Of course this would be a one time revenue stream and some of that money would have to be used to offset road improvements to the other highways in Ohio. The other caveat is the potential "tax increase" that Ohioans would face when the rates on the turnpike are increased by the private entity that operates the leased tollway.

Yes to Tax Increases

The last option is the most effective but least politically feasible of all budget fixes. The key members of the Senate, House and administration can meet at a local Applebees and agree to raise some tax rates. The numbers provided by Siegel make it clear that there is ample capacity to bridge the budget gap with tax rate increase alone. The tax increases could be kept in check if they are coupled with fixes from the spending cut and creative finance pots.

This move would require some very hard headed people to accept the premise that tax revenues have fallen to perilous levels in part because the tax reforms of 2005 were untenable and unrealistic. There will have to be some ratcheting up of income tax brackets in order to get the budget above water. The other change to tax rates will have to be the misunderstood CAT.

The commercial activities tax was implemented as part of the HB66 reforms as a low tax with a very broad base. The results on the CAT are still inconclusive but a slight increase to the already low rate would go a long way in increasing tax revenue. These changes may be enough to get us in balance while avoiding tinkering with the more regressive sales and property taxes.

There you have it, over $3 billion in fifteen minutes or less. Enjoy the potato skins gentlemen.

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