Deficit may be lower than was thought

Plain Dealer

Columbus

The ice cream barely had a chance to start melting last week before Gov. John Kasich blurted out the magic words: $8 billion dollar deficit.

“You all know when I came in things were extremely difficult,” the Republican governor told a GOP- friendly group of small-business owners gathered at a gourmet ice-cream parlor in suburban Columbus. “We had about an $8 billion deficit, largest in the history of the state.”

Hours later, in an interview with Fox News host Neil Cavuto, Kasich repeated his statement about the state’s $8 billion problem, adding: “But, you know, we have stepped up to the plate. We’re going to get this done.”

The $8 billion figure seemingly has been cited 8 billion times in the contentious debate on the state budget for 2012-13, with Kasich and GOP lawmakers taking credit for closing the huge gap. After House Republicans approved their version of the budget May 5, they even sported buttons saying “$8 billion” with a slash through it.

But some Democrats and their allies have questioned whether the hole was really all that big.

Some argue the deficit actually will be less than $6 billion.

“In the end, it wasn’t an $8 billion hole at all,” said Brian Rothenberg, executive director of ProgressOhio, a liberal public-policy group, as he ticked off a number of factors, starting with higher-than-expected tax revenues in recent months.

“It’s hard to know how big it really was — and it’s made more so by the lack of transparency in this budget.”

There was a projected gap of about $7.7 billion between state spending and expected revenues in the current budget for 2010-11, once you subtracted federal stimulus money and other “one-time” dollars used to balance the books, according to Kasich’s budget team.

The projection, made in January, confirmed estimates that had been made months earlier. The January projection was based on a number of assumptions, including these two biggies: There would be no new revenue growth in 2012-13, and tax revenues in the current budget would fill the state’s piggy bank at the rate that was anticipated.

But those assumptions have changed. Tucked away in the details of Kasich’s massive state-spending blueprint released March 15 was a projection that tax revenues actually will grow by about $800 million as the economy comes back from the recession of 2008.

That makes the $7.7 billion gap between spending and revenues actually about $6.9 billion once you factor in tax-revenue growth in 2012 and 2013.

A second assumption also is turning out to be faulty. Revenues for this fiscal year actually are about $840 million higher than expected — and on pace to be about $1.03 billion higher than expected when the books for fiscal 2011 close June 30.

Add up all the extra revenue and you get $1.6 billion to $1.8 billion. So the real deficit is actually turning out to be about $5.9 billion to $6.1 billion.

In an interview Thursday, Kasich’s budget director, Tim Keen, acknowledged that “conceptually, I agree” that the so-called “structural imbalance” is turning out to be something in the $6 billion range. But, he said, “I don’t know if I would apply the numbers the way you are here.”

Mainly, Keen noted that the $1 billion or so in higher-than-expected revenues for this year “isn’t helping us balance the budget in 2012 and 2013” because of unpaid bills left over from the administration of Democratic Gov. Ted Strickland and other expenditures the state likely will have to make to balance the 2011 books.

Ohio’s improving economic picture that has pushed up 2011 revenues and spurred expected future tax revenue growth is something that Statehouse Democrats credit to Strickland’s final budget, which they say ushered in growth while avoiding deep and harmful cuts.