State Budgets

State of the State: Ohio

Well-intentioned economic interventionism is all-too-common in the Buckeye State

Governor John Kasich took a victory lap during the annual State of the State address, celebrating the strengthening economic recovery in the Buckeye State. The governor noted that six years ago, Ohio lost 350,000 jobs. “That’s filling Ohio Stadium three times, plus. Now we are up 460,000 new jobs in our state,” he exclaimed. As evidence of the business-friendly renaissance, he cited a survey of CEOs which named Ohio one of the ten best places to do business. “That’s 34 places higher than we ranked in 2010,” Kasich noted. This improvement is no outlier. Forbes now ranks Ohio at 11th, after languishing at 38th in 2010. And the recently released 10th edition of the American Legislative Exchange Council report Rich States, Poor States economic outlook rankings shows Ohio leaping from 45th in 2009 to 19th this year.

This success is largely attributed to reigning in spending (a 13.2 percent operating budget increase over five years), income tax reductions (specifically on small businesses) and regulatory reform. Indeed, the top marginal income tax rate declined from 8.87 percent in 2008 to 7.5 percent in 2017, while the top marginal corporate income tax rate plunged from 10.5 percent in 2008 to just 3.64 percent in 2017. Property tax and sales tax burdens also fell along with the elimination of the estate tax during this stretch. Of important note, workers’ compensation costs were slashed in half, from 3.32 percent of payroll to just 1.45 percent. And the governor hinted at another $1 billion in rebates from the workers’ compensation board on the coming year. These changes reflect the governor’s premise that “our greatest moral purpose as governmental leaders is to create an environment of job creation in which people can have work in which people can support their families.”

Unfortunately, some of the proposals articulated in the address do little to foster further economic improvement. The governor called for a “new Ohio Institute of Technology” headed by a “chief innovative officer for Ohio.” What will the role of this government official be? “That person will mine our strengths, coordinate our resources and always look ahead to what’s coming next,” says Governor Kasich. But is this the proper role of government? An efficient allocation of resources (whether capital, labor or technology) best occurs when these assets can freely flow according to the demands of free individuals within the marketplace.

This top-down tendency to micromanage economic growth displayed itself with the governor’s warning regarding the changing jobs market: “If we aren’t prepared for change, people are going to find themselves out of work… business, education, government, all of us. We need to start thinking about what new jobs are going to exist, and which ones will change.”

This well-intentioned interventionism is all-to-common in the Buckeye State. Governor Kasich spearheaded the development of JobsOhio, technically a private, non-profit corporation. This entity invests in hundreds of private ventures and companies across the state. According to the 2016 annual report, “Since starting this revitalization program three years ago, JobsOhio has committed more than $110 million of loans and grants. This funding has served as a catalyst for more than $1 billion in total investment in redevelopment projects.”

But the devil’s in the details. What is the primary source of funding for JobsOhio? None other than the JobsOhio Beverage System (JOBS). In 2013, the state of Ohio granted JOBS the “exclusive franchise for the sale of spirituous liquor throughout Ohio.” In exchange for this right to engage in the liquor sales market to the exclusion of potential competitor, JOBS delivered an initial payment to the “private” JobsOhio corporation in addition to transferring all of its annual net revenues to JobsOhio as well. In other words, in exchange for state authorization to operate liquor stores free of competition, this private company funds a venture capital firm. Although technically “private,” JobsOhio could not operate on this grand scale without this state-created investment capital stream derived from consumers forced to endure the state-created liquor monopoly.

In addition, the governor failed to talk directly regarding his decision to bypass the legislature in expanding Medicaid through Obamacare provisions in the state. He commended the reduction in the rate of growth of Medicaid expenditures from 9 percent to 3 percent annually. But he ignored rigorous data analysis showing that the short-term budgetary benefit from Medicaid expansion (thanks to federal matching funds) turns into a cumulative fiscal hole by 2027 as the federal match proportion declines.

Governor Kasich is right: “Staying on the right track means keeping up the same energy that got us here and building on the ideas that we know work. Conservative budgeting, even in these tight times. More tax reform, more work to streamline regulation, more progress on connecting education and our workforce training with job creators.” But much work remains. Personal income taxation (state and local combined) is still 13th highest in the nation. According to the ALEC report Unaccountable and Unaffordable 2016, Ohio’s unfunded per capita public pension liability is 2nd highest in the nation, and forced unionization remains a drag on job opportunities expansion. A renewed focus on reforms—rather than government micromanagement—can ensure the governor’s homestretch is one of continued economic renewal.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

+ State Budgets In Depth