Ohio budget hurt by economy, politics

Published 9:33 am Tuesday, May 19, 2009

A potent combination of economics and politics has Ohio lawmakers facing the prospect of repairing a hole of at least $2 billion in the next two-year budget in a little over a month.

Among the factors: Pessimistic economic forecasts weren’t pessimistic enough. The Democratic-controlled Ohio House increased spending and didn’t follow through on Gov. Ted Strickland’s proposals to cut spending. And the state likely faces a ‘‘U-shaped’’ or ‘‘L-shaped’’ economic recovery, according to its budget director — in other words, the economy will either recover slowly or it will do no better than simply stopping its decline.

The hole in the budget passed by the Ohio House a couple of weeks ago was partly a function of Strickland’s budget staff not foreseeing the depths of the recession.

The revenue model the governor used to craft his budget plan was pessimistic, forecasting $2.4 billion less in tax revenue in the 2011 fiscal year than in the 2008 fiscal year. But based on recent performance, lawmakers are still likely in for an even more negative forecast before they begin to work out difference between the House and Senate budget plans.

‘‘The reality is, everybody has been wrong,’’ Strickland Budget Director Pari Sabety told the Senate Finance committee in testimony on May 7.

Flawed economic forecasts have also blown a hole in the budget in a more indirect way. The House budget plan for the next two years called for the spending of the roughly $1 billion rainy-day fund the state maintains for budget crunches. But the final months of the current budget period that ends June 30 drastically underperformed expectations, and a good chunk, if not all, of that money will likely be used to balance the current budget.

But part of the gap also rests on the shoulders of the Democratic-controlled House, which increased spending by $622 million over Strickland’s proposed budget. The House did not have the latest tax revenue numbers from April, in which income tax collections came in $322 million under projections, but could arguably have taken note that revenue had consistently been coming in below projections in recent months.

Many Republicans have argued that the House and Strickland purposely avoided making tough decisions so the GOP-controlled Senate would be stuck with the butcher’s knife. But Democrats have said they didn’t have the latest revenue numbers before the House passed its budget on April 29. Strickland has said he didn’t have finalized numbers to give the House before it passed the budget. While things didn’t look good, Strickland said, the final days of the month generally see a large number of tax returns, so he thought it premature to provide numbers.

The House also stripped out, or modified, proposals to save money that Strickland had put in his proposed budget for future years, when Ohio won’t have billions in federal economic stimulus dollars.

For example, Strickland proposed several sentencing reforms to decrease the number of inmates in the state’s prisons, moves Sabety said would eventually result in $30 million in savings per year. But the House took the changes out of the budget bill.

Strickland’s budget also would have increased fees from nursing homes and decreased costs to the state. But the House plan would spend more state money on nursing homes, which essentially nullifies the impact of increased fees and brings down more federal money in the process. House Speaker Armond Budish, who has decades of experience as an elder care attorney, said he changed the proposal because he believed the increased fees on nursing homes would lead to diminished care.

The governor’s proposal for nursing homes would have reduced state tax dollar expenditures by about $766 million over the two-year period. The House plan cuts into those savings.

‘‘The governor believes that these items are worthy of further consideration as the bill continues to move through the Legislature,’’ Strickland spokeswoman Amanda Wurst said Friday.

Strickland’s administration has said the size of the gap will require cooperation among all parties.

‘‘All leaders of the state are going to need to be at the table to solve a budget shortfall of this size,’’ Sabety said May 7.

Stephen Majors is a correspondent with the Ohio Associated Press Columbus Bureau.