Healing economy may shrink Ohio’s $8B budget hole

Associated Press

COLUMBUS

Jobs, production and tax revenue are on the rise in Ohio, and so, too, is the state’s economy.

Yet state leaders warn of a looming budget gap, estimated at nearly $8 billion.

The anticipated gap has been the backdrop of Gov. John Kasich’s proposals to sell five state prisons, lease the Ohio Turnpike, severely limit the power of 350,000 public workers, and lift caps on new charter school start-ups and college tuitions.

Proposed cuts to state programs in his $55.5 billion, two-year spending blueprint have riled advocates for local school districts, libraries, children, and the poor — some of whom have urged tax increases to avert disaster.

Yet there’s an increasingly good chance the estimate will turn out to be too high.

“The numbers are very positive right now, there’s no doubt about it,” said David Pagnard, a spokesman for the state Office of Budget and Management.

News on Friday that Ohio’s unemployment rate dropped for the 13th straight month, to a two-year low of 8.9 percent, was just the latest sign the budget hole could shrink before lawmakers approve the financial plan by the June 30 deadline.

Projections heading into budget negotiations were far more grim. Last June, the Governor’s Council of Economic Advisors was predicting unemployment in the state would average 10.2 percent in calendar year 2011 and 9.7 percent in 2012.

But, as Ohioans head back to work, they drop off government-aid programs and pay more income taxes. In turn, that improves the state’s fiscal picture.

The state financial report released Tuesday also contained positive news.

March tax receipts were $157 million, or 13 percent, ahead of projections. It was the eighth consecutive month of better-than-expected receipts across most tax sources, the budget office told Kasich in its report.

A percentage increase in the number of jobs across the state, assuming an average salary of $40,000, would translate into about $2 billion in additional taxable income and $60 million in new tax revenue for state coffers, Ohio Department of Taxation spokesman Gary Gudmundson said.

He cautioned such a figure is just a “back of the envelope” calculation, not the complicated tax revenue analysis that prompts state projections to be adjusted. Also, falling unemployment and rising employment aren’t exactly the same.

“There’s lag time, and there are all sorts of variables that might go into that, as you can appreciate,” he said. “So it’s really not a correlation we can make easily.”

Ohio Department of Jobs and Family Services spokesman Ben Johnson said the same applies to government-aid programs, such as public assistance, children’s health insurance, and Medicaid.

But the department did see early evidence of the economic upswing in December, he said. That month, Medicaid enrollment declined very slightly for the first time since December 2007.