Keno As Proxy

The results are in on Ohio's Keno gambit and the numbers are pretty weak. According to the State Lottery Commission the expansion of games of chance as a revenue source fell short, really short.

The venture that was used to beef up revenue to the State by an estimated $73 million performed well below expectation. The annual take for keno in Ohio, $30 million, not so hot.

Officials blame the shortfall on hard economic times. I blame it on the over-rated nature of gambling schemes to solve State revenue woes. The money raised by keno is earmarked for education funding but thankfully money is fungible. The State won't have to cut funding to education due to the shortfall.

The pressing issue now becomes the massive gamble the State budget has placed on video terminal slots and whether they will perform as advertised. The working number for the foray into gambling is expected to back fill revenue to the tune of $930 million. That's nearly a billion dollars in programs that were spared from the chopping block during the FY2010 budget process.

If the VLTs perform as poorly as keno the Gov' could be forced to cut another $500 million from the freshly approved State budget. Any subsequent cuts made will most certainly hit bone.

High Noon In Columbus

The State General Assembly is still mulling, no agonizing over how to bring Ohio's next biennial budget into balance by next week. So far massive spending cuts and an anemic attempt at raising revenue from slot machines are the only means to achieve that end.

The cuts have hit just about every area of the State's operations including libraries and social programs. Of course there has been no serious push at rolling back at least part of the income tax cuts enacted in 2005. Although the Dispatch has reported on a small band of Dems that have requested a tax increase in lieu of the deep spending cuts. It looks like no new taxes and no new books will win out.

In a new development the Governor had requested a meeting with all elected State executives at noon today. I know this because State Treasurer Kevin Boyce was supposed to speak at a state sponsored training seminar today but was not able to attend. His staffer explained that Boyce and his elected colleagues had been summoned by Strickland to come and offer up "more blood from their respective turnips", the staffer's words not mine.

This move is interesting because much of the attention has been directed at cutting programs administered by the Governor's cabinet agencies. We'll see if the individual elected officials will be willing to sacrifice more of their kingdom to the alter of spending cuts.

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.

Furloughs For Everyone

As the State is grappling with balancing the FY 2010 budget  local governments are also trying to find ways to shore up their fiscal houses.  City and county governments have already had to contend with their 2009 budget cycles and continue to bleed red ink as the recession strains revenue collections.

Staffing costs are the largest component of local government budgets.  A county such as Cuyahoga for example spends as much as sixty percent of its operating dollars to pay employees and provide them with fringe benefits.  Thus any meaningful action that can be undertaken to plug a budget deficit has to involve reducing those people related costs.

The method of last resort is laying off of employees.  Hamilton County , deep in financial distress has already laid off hundreds of people and plans canning more staff this year.  Other counties such as Summit and Cuyahoga  have implemented early retirement programs, the good natured cousin of the lay off.

The relative newcomer to the staffing cut arsenal is the furlough or unpaid leave. Previously, furloughs were a creature of the manufacturing sector.  A plant shuts down for a few weeks and the workers get a paid or unpaid vacation.  The furlough concept is gaining ground as a budget reduction mechanism in the white collar world.  A recent WSJ article highlighted the benefits of using furloughs to cut costs:

Amid the steep job losses, some managers and advisers are touting alternatives to layoffs, including furloughs, pay cuts and reduced workweeks. Some economists say these alternatives slow the recession's downward spiral by preserving jobs, albeit at lower wages.

Some counties in Ohio  are moving to employ furlough programs to check budget deficits that continue to grow unabated.  The only catch has been that O.R.C. does not permit County employees not covered by a bargaining agreement to be furloughed.  Yet another example of the outdated and inflexible means in which county government is organized in the Buckeye State.

In response to the need of counties to have the option of unpaid leave a provision is being tailored for insertion into the Senate version of the budget bill.  The County Commissioner Association of Ohio  has been working on the furlough amendment and plans to have something ready for the Senate bill this month.  Inclusion of the amendment would permit county governments to furlough employees as a cost cutting measure. Of course the deeper the fiscal mess faced by any individual county the more likely lay offs will be necessary. 

Uh, Yeah ...you're going to have to come in on Saturday to make up that furlough time.

State Budget: Missing The Moving Target

The latest update on State tax revenue projections is grim.  Each time Pari Sabety's crew gets another round of revenue data their estimates bottom out even further.   The latest income tax numbers really stink.

Total tax receipts through March were about $200 million below revised estimates, and total income-tax collections for April alone were $322 million, or 22 percent, lower than the already-pessimistic projections...

Due to the cliff diving tax receipts a third round of budget cuts was announced in Tuesday by the administration.  With tax revenue in a tailspin Governor Strickland had no choice but to make deeper cuts to the current year budget, or what remains of it.  The latest reductions could total $900 million and will no doubt harm be felt by the already reeling local governments.   The fiscal year ends on June 30th at which time another beleaguered budget starts anew.

The question arose in my office today.  How can they continue to be off the mark by such a wide margin?  Could it be that no one in Columbus is willing to accept how detrimental an ailing economy couped with short sighted tax cuts can be to the State's revenue sources.  This episode reminds me of Nassim Taleb's book Fooled By Randomness .  The over reliance on historical data to predict where the bottom will be has not worked out to well.  This latest recessionary cycle has broken the mold.

No matter, the new budget will be anything but fresh.  In order to staunch the deficit flow Ohio will have to tap the budget reserve fund (rainy day fund) before the end of the fiscal year.  That means there will be less of those much touted one-time revenue available for the FY 2010 budget.  The Senate Republicans are already complaining.  They will have to find the billion or so dollars needed to restore equilibrium to the next budget

There is now an inescapable fact staring the General Assembly in the collective face. You hear that State senators?    Some form of tax increase coupled with additional cuts to programs will have to be factored into the latest budget bill.  I can't think of another way out of the mess. 

Quid Pro Quo Doctor

Recently retired Cuyahoga County Coroner Dr. Elizabeth Balraj is taking a position as a forensic pathologist within the same County outfit she ran a mere two months ago. The newly created position comes with a modest salary of $157,000 plus posh fringe benefits. Yes, I said newly created position. It seems someone at the Board of Commissioners felt it was appropriate to give the good doctor the nod for all of her years as a dependable electable democrat. Of course Dr. Balraj can take the position for a short tenure to get her pension income level up a tad before she retires again. Yet one more nod from the County leadership.

What is really interesting is that the funding request was championed by Balraj while she still held the title of Coroner and had every intention of taking one of the newly created jobs. It gets better. The analyst at the County budget office that was responsible for working with the Coroner's on getting approval by the Commission was conveniently offered a better paying position that was also part of said funding request. All of this under the nose of the Budget Director and County Administrator. Is it ethical? According to the section of the Ohio Ethics Law dealing with seeking employment it doesn't even appear to be legal. Not bad for a County that's losing revenue, it's residents and looking to cut budgets across the board in 2008.