To help the state fill a big multibillion-dollar budget hole, John Kasich axed the state’s local government fund in 2011, cutting it in half. In doing so, the governor broke a pact between state and local governments dating to 1934, when lawmakers approved the state’s first sales tax. The idea then was that new revenue would be shared, helping local governments meet their obligations after passage of a constitutional amendment in 1933 that sliced one-third off property taxes for schools and local governments.
In his latest two-year budget proposal, the governor has added a further complication. A portion of what remains of the fund would be allocated based on a new calculation of a local government’s capacity to raise revenue. The percentage of the fund distributed in that way would rise gradually, from 5 percent in 2018, to 10 percent in 2019, to 20 percent in 2020.
The theory behind the change is to route money to areas that need it the most, but there appear to be serious inconsistencies in how this capacity factor would work in practice.
While some wealthier suburbs would take a hit and poorer ones would get help, Kent Scarrett, the director of the Ohio Municipal League, points to poverty-stricken East Cleveland, which would lose money. Many of Ohio’s largest cities, among them Cleveland, Cincinnati, Dayton, Columbus and Canton, also would lose money, Cleveland topping the list with a $2 million hit.
Akron, meanwhile, with its low assessed valuation, would break even, essentially — but after having suffered a $15 million annual loss due to reductions in the local government fund and other state policy changes. Summit County would suffer a small reduction, mirroring its low sales tax rate.
At best, the capacity factor amounts to robbing Peter to pay Paul at a time when all local governments need state funding restored. The state’s big cities are its economic engines, and the local government fund has been particularly useful for economic development because of its flexibility.
More, the governor continues to send mixed messages. State budget cuts have created increased pressure on local governments to raise taxes, even though the governor is proposing additional state income tax cuts. Meanwhile, the state is sitting on a $2 billion rainy day fund, while the governor criticizes locals for their surpluses.
Besides reductions in the local government fund, the state has eliminated the estate tax and phased out reimbursements for the previously eliminated tangible personal property tax. The coming elimination of a tax on Medicaid managed care providers would hurt counties and transit authorities, but the governor has proposed just a temporary measure of relief.
Scarrett of the Ohio Municipal League has a better idea. If the state wants a distribute money based on need, he proposes a new, supplemental funding stream for local governments linked to interest from the state rainy day fund. Even better would be a realization that the state should reverse at least a portion of its income tax cuts, allowing for a restoration of the local government fund, honoring a revenue-sharing deal that reflects the shared mission of local and state governments to advance Ohio.