A Summary of Governor Kasich’s Budget

Governor John Kasich unveiled “Ohio’s Jobs Budget 2.0,” his state operating budget proposal for fiscal years 2014-2015. The budget and tax report is contained in more than 800 pages of text and spreadsheets. A Budget in Brief analysis is provided below, courtesy of the team at Hicks Partners.

As you will note, this analysis contains only bullet-point highlights of the Governor’s proposals. Additional information is available can be provided as needed; contact any of the Hicks Partners to discuss the budget proposal in greater detail.

In addition to the budget and tax reports released yesterday, the Kasich Administration released several overview documents. One of the most comprehensive, yet easy-to-understand documents is this PowerPoint presentation (click here).

Overview

• Total budget spending will be $63.7 billion for FY14 and $66.8 billion in FY15
• $30.6 billion in General Revenue Fund (GRF) in FY14
  • 10.5% increase over FY13 spending levels
• $32.7 billion in GRF in FY15
  • 6.1% increase over FY14 spending levels
• State share of GRF, which excludes federal reimbursement for Medicaid programs, is $21.1 billion in FY14 and $21.6 billion in FY15
• Ohio’s “Rainy Day Fund” will receive an infusion of $482 million to bring its total to $1.46 billion at the end of FY13
  • $400 million will go into the Income Tax Reduction Fund to provide a one-time personal income tax cut of approximately 4%

Tax Reform

• 20% reduction in personal income taxes phased in over 3 years
  • 7.5% cut in tax year 2013; 7.5% cut in 2014; 5% cut in 2015
    • New highest marginal tax rate will be 5.481% in 2013; 5.036% in 2014; and 4.74% in 2015
  • This tax reduction represents $2.1 billion in tax cuts for individuals
• 50% reduction in income taxes for small businesses that operate as “pass-through entities” or sole proprietorships. This proposal will allow a 50% deduction on the first $750,000 of revenue for these entities.
  • This tax reduction represent $1.9 billion in tax cuts for small businesses
• $400 million being deposited into Income Tax Reduction Fund, resulting in a onetime income tax cut of 4% for tax year 2013. This is in addition to the proposed permanent 7.5% reduction in tax year 2013.
• Reduce state sales tax from 5.5% to 5.0%
• Expand sales tax to cover all services except for a few numerated exempted areas related to education, housing construction, rent, health care and residential utilities. As a result, new services to be included under the sales tax expansion include, among others:
  • Information service
  • Cable broadcasting
  • Internet publishing
  • Financial services fee income
  • Real estate services for non-residential real estate (agents, brokers, managers)
  • Lobbying services
  • Collection services
  • Travel Agencies
  • Parking
  • Legal services
  • Accounting services
  • Architectural services
  • Engineering services
  • Management consulting services
  • Advertising and Marketing services
• Expansion of the sales tax base will impact county and transit authority piggyback taxes. As a result, the budget proposal would mandatorily rollback local piggyback tax rates so that the local tax revenue increase is limited to approximately 10%.
• Impose a Severance Tax increase for horizontal gas and oil wells
  • Tax rate for horizontal wells will be 1% of total value of extracted natural gas; 1.5% of value of resource in first year of cost recovery and 4% each year thereafter for oil, natural gas liquids and condensates extracted.
  • $44.9 million will be generated by the new Severance Tax in 2014, $156 million in 2015, $307 million in 2016 and $413 million in 2017. Much of this revenue will be used to offset the proposed 20% reduction in personal income tax rates.

Education

Primary and Secondary

• $7.4 billion of GRF and Lottery funding to schools in FY14
  • Increase of 6.7% over FY13
• $7.7 billion of GRF and Lottery funding for schools in FY15
  • 4.1% increase over FY14
• “Core Opportunity Aid” will ensure that every school district that levies 20 mills in property taxes will generate the same as a district with a $250,000 per-pupil property tax base.
  • Currently, only 4% of all school districts have more than a $250,000 per pupil property tax base
• “Guarantee Funds” will ensure that no school district will receive less in formula state aid than it did in FY13.
• The Governor’s budget shifts more funding into the classroom:
  • Special Education programs will receive $711.2 million in FY14 and $765.3 million in FY15
  • English Language Learning programs will receive $17.7 million in FY14 and $18.8 million in FY15
  • Early Childhood programs will receive $90.3 million in both FY14 and FY15
  • Children in Poverty programs will receive $488.8 million in both FY14 and FY15
  • Gifted and Talented Student programs will receive $85.2 million in both FY14 and FY15
• $300 million will be used to create the “Straight-A Fund” to provide one-time grants for school districts to launch innovative strategies to improve student achievement.

Higher Education

• New funding formula for higher education as designed by college and university presidents:
  • Formula rewards degree completion and graduation at four-year institutions
    • 28.2% of funding formula will be based on student course completion
    • 50% of formula funding will be based on student graduation
  • Formula rewards course completion at two-year colleges
    • 50% of funding will be based on enrollment
    • 25% of funding will be based on student course completion
    • 25% of funding formula will be based on other “success points”
  • 2% increase in State Supplemental Share of Instruction
    • $1.784 billion in FY14
    • $1.818 billion in FY15
  • Caps tuition and general fee increases on a statewide average of 2%
  • Eliminates “stop loss” for poor performing institutions and historical setasides.
  • Funds from these two initiatives will be used to reward performance-based outcomes.

Transportation

• Ohio Department of Transportation (ODOT) will receive $3 billion in FY14
  • Increase of 5.1% over FY13
• ODOT will receive $3.14 billion in FY15
  • Increase of 4.6% over FY14
• Most of the revenue generated for ODOT increases will come from issuance of $1.5 billion of Ohio Turnpike Bond proceeds.
  • 90% of the Turnpike bond proceeds will be spent in Northern Ohio near the turnpike
• In general, ODOT will be able to maintain a construction program of $1.3 to $1.5 billion annually.

Medicaid

• Expand Medicaid to cover an additional 275,000 Ohioans
  • Medicaid eligible individuals and families who earn up to 138% of federal poverty level will receive health care coverage
  • $14.5 billion in GRF spending in FY14
  • $16.3 billion in GRF spending in FY15
• Funding is provided to support several Medicaid Health Information Technology initiatives, including promoting electronic health records, health information exchange and modernizing Medicaid eligibility systems.
• Under the federal Affordable Care Act, the federal government has committed to providing 100% of the funding for the expanded population for three years, decreasing to 90 percent by 2020. The Kasich Administration stated it will roll back the Medicaid expansion if the federal government alters their financial commitment.

Next Steps

• Director of Office of Budget and Management and Legislative Service Commission budget officials testify before the House Finance Committee today.
• House Finance Committee will hear in-depth testimony of proposed tax changes on Tuesday, Feb. 12; education on Wednesday, Feb. 13; and health and Medicaid issues on Thursday, Feb. 14.
• Finance subcommittees will begin consideration of the budget proposal in greater depth during the week of Feb. 18.
• Text of the budget legislation is expected to be introduced next week. Once this occurs, further information, analysis and impacts will become available.

For more information, contact Anthony Brigano – Government Relations Manager with Hicks Partners, LLC – at 614-221-2800 or tony.brigano@hickspartners.com.