www.policymattersohio.org 

Presentation to League of Women VotersMarch 31, 2015

Ohio’s 2016-17 budget

FY 2016-17 budget – State GRF, LGF and LPEF

Other9%

Human services5%

Medicaid25%K-12

40%

Higher ed10%

Local Government3%

Corrections7%

Environmental1%

Source: Policy Matters Ohio, based on Legislative Service Commission’s Budget in Detail for HB 64

Trends in selected categories as a share of state budget 2012-2017

 

Source: Policy Matters Ohio based on Legislative Service Commission Table 2: Historical Expenditure – GRF, LEPF and LGF

2012 2013 2014 2015 2016 20170.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0% 40.3%42.0%

10.5% 9.8%

29.2% 30.0%

8.0% 7.3%4.6% 3.2%

K-12 Higher ed. Health & Human Services Corrections Local Gov't & transportation

Over a longer period of time, K-12 and health goes up, human services, higher education & local government go down.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20170.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

36.8%

42.0%

9.8%13.2%

21.6%

11.2%8.4%8.7%7.3%7.5%

3.2%

K-12 Higher ed Health Human servicesCorrections Local Gov't & Transportation

Policy Matters Ohio, based on LSC data (Table 2, historical expenditures, state only sources, GRF, LPEF and LGF)

There is growth of investment in key areas of the FY 2016-17 GRF budget

Education• More dollars in K-12, but many public schools struggle

• Charters and vouchers continue to grow

• Threats to the future:–Tax reimbursements–Property tax rollback

Adjusted for inflation, formula funding and  revenue sharing falls compared to prior years

Source:  Policy Matters Ohio, based on LSC data (State GF & Lottery profits formula funding, TPP replacements & federal stimulus) and analysis by the Education Tax Policy Institute (Dr. Howard Fleeter), published in the Cleveland Plain Dealer 3/26/2015 .  2017 dollars.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017$0.0

$1,000.0

$2,000.0

$3,000.0

$4,000.0

$5,000.0

$6,000.0

$7,000.0

$8,000.0

$9,000.0

$10,000.0

$7,317.2 $7,906.8

$8,450.12$8,932.73

$8,743.40$8,245.60

Nominal dollars Constant dollars

• Medicaid backfills for social services• More funding for DD, to reduce wait list of 22,000 with immediate needs.  Changes in services:  Centers closed; status of aides changed.

• “Personal responsibility and public assistance” 

Health and human services

Medicaid

• Reauthorization• Optional services• Areas we are watching

–Infant mortality –Barriers to access –Eligibility

Local government• No restoration of revenue sharing• Expansion of sales tax base to help with county, transit funding.

• Severance tax would help locals in drilling-impacted areas.

• Social service levies hit again through loss of tax reimbursements.

Investments we need to make• Rehire 1400 police and firefighters: $100 million to Local Government Fund• Weatherize 15,000 homes : $100 million for energy efficiency rehabilitation.• Help families earning up to $40,000 pay for childcare: $140 million helps families of 25,000

children pay for care.• Help low-income college students graduate: $63 million over the 2-year state budget for

need-based financial aid for 27,000.• Restore teachers and aides to the classroom: Use the $409 million that will be phased out

in tax replacements promised to the schools for teachers. • Ensure 100,000 reports of abused children are addressed everywhere: $40 million for Child

Protective Services in the 2-year state budget.• Protect up to 115,000 of vulnerable seniors: $40 million for Adult Protective Services over

the 2-year state budget underwrites services in all counties.• Help 50,000 Ohioans get to work and back: restore aid for public transit operations to $40

million a year. • Provide 112 million meals for hungry Ohioans: $40 million over the 2 year state budget for

the Ohio Association of Foodbanks • Provide a refundable earned income tax credit set at the national average: Less than $300

million a year shields families from rising sales and property taxes.•

More than a third of Ohio’s GRF is federal money

Taken from Ohio’s Executive Budget Proposal for FY 2016-17 (OBM)

Sales tax is largest source of state revenue in this budget

Taken from Ohio’s  Executive Budget Proposal for FY 2016-17 (OBM)

State & Local Taxes as a Percent of Personal Income, FY 2012

Ohio U.S. 0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

Baseline GRF tax collections still below pre-recession levels as of FY14

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00

$17.14

$19.00

$19.56

$19.47

$19.42

$17.09

$16.23

$17.71

$18.14

$19.47

$18.59

0.87

1.55

1.55

Baseline revenues Funds from cuts to revenue sharing

Totals - $20,135

$21,016

$19,005

Source: Policy Matters Ohio, based on EPTI calculations by Howard Fleeter. Billions of dollars, not adjusted for inflation

Ohio State and Local Taxes as a Share of Income, Non-elderly

Bottom 20 Second 20 Middle 20 Fourth 20 Next 15 Next 4 Top 10%

2%

4%

6%

8%

10%

12%

14%

0.2% 0.9%1.7% 2.1% 2.6% 2.9%

3.7%

11.7%

10.8%10.6% 10.2%

9.7%

8.2%

7.0%

Total state & local taxes State personal income tax

The 2005 Tax Overhaul

• 21% cut in Income Tax over five years (completed 2011)• Phase-out of Corporate Franchise Tax, Ohio’s corporate income tax

•  Phase-out of Tangible Personal Property Tax, a local tax on machinery, equipment, inventory, furniture and fixtures

•  Creation of Commercial Activity Tax on Ohio gross receipts  

• Increase in Sales Tax rate to 5.5% from 5.0%• Effect of these changes: $2.5 billion in annual tax cuts

Tax changes in 2013-14

• Income tax reduced 10%• Tax on first $250,000 in business income cut by half (and by three-quarters in 2014)

• Sales tax increased from 5.5% to 5.75%• Other tax increases, such as limiting the Homestead Exemption and property tax rollbacks  

• Nonrefundable Earned Income Tax Credit created, increased to 10% starting this year

• Personal exemptions increased for those making $80,000 or less

Taxes and the state economy

• There is no direct relationship between tax rates and economic performance. 

• Public services that maintain the quality of life and support critical economic development goals impact the business climate.

The tax break on business income

• Covers income from S Corporations, LLCs, partnerships, sole proprietorships

• This new deduction cost $300 million in 2013 taxes, becoming the 8th largest tax break

• Most of the Ohio business owners eligible for the break employ no one but themselves

• The average 2013 claimant got $782, not nearly enough to add an employee

• Those with business income over $200,000 received more than a third of the break

Tax changes, 2005-2014Average Annual Effects

Bottom 20% (<$19,000)

 Next 20% ($19,000-$34,000)

Middle 20% ($34,000-$54,000)

Next 20% ($54,000-$82,000)

Next 15% ($82,000-$151,000)

Next 4% ($151,000-$360,000)

Top 1% (>360,000)

($25,000) ($20,000) ($15,000) ($10,000) ($5,000) $0  $5,000 

New changes proposed in the state budget for 2016-17

Changes proposed for income taxes

• Cut income-tax rates by 23% over two years• Eliminate income tax on pass-through income.• Boost income-tax personal exemptions for those with less than $80,000 in annual income.

• Means-testing 5 income-tax provisions for seniors, restricting to those of income <$100,000 – A deduction for Social Security income, – a $50 senior credit, a credit for lump-sum retirement income and two other small lump sum credits. 

Other changes to taxes

• Increase in the state sales-tax rate from 5.75 percent to 6.25 percent

• Extend the sales tax to a number of additional services

• Increase cigarette and other tobacco taxes • Raise the rate of the Commercial Activity Tax, while lowering the minimum CAT tax paid by some firms; 

• increase the severance tax on oil and gas produced using high-volume horizontal wells; and 

• Reduce or scrap some other tax breaks. 

Outcomes of the tax changes

Have Ohio tax cuts worked?

Ohio U.S.

-1.56%

4.81%

Change in nonfarm jobs, June 2005 to December 2014

We’ve lost a lot of ground in median wages

Investment in people pays

Indiana7%

Michigan 6%

Kentucky6%

West Virginia6%

Ohio 10.7%

PA6%

Existing rates shown for neighboring states.

If income tax were eliminated, Ohio’s sales tax rate would be extremely high

Tax exemptions, credits & deductions

• New report will be included in governor’s budget proposal—this fiscal year, 129 tax exemptions, credits and deductions were estimated at $8 billion

• Some, such as the sales-tax exemption on prescription drugs, go to individuals; most go to businesses

• No review mechanism exists; many loopholes have gone unexamined for decades 

• New or expanded tax breaks include sales tax on computer data-center purchases (Amazon), income-tax exemptions for snowbirds, taxes for investments in small companies even if they just continue paying existing employees. 

Ohio’s Earned Income Tax Credit

• Our state EITC, set at 10% of the federal credit, was a small step toward tax fairness  

• The credit remains nonrefundable, so it does little or nothing for many of the poorest Ohioans—just 7% of the bottom fifth qualify, getting $60 on average 

• It also is capped and is below the 16% average for other two dozen states with credits  

www.policymattersohio.org 

Wendy PattonPolicy Matters Ohio

wpatton@policymattersohio.org(614) 221-4505

For reports, see http://www.policymattersohio.org