Can local governments do more with less tax money from the state? That is a question local elected officials have had to deal with the past year. In the 2014 biennium budget, Governor Kasich and the Republicans in the General Assembly made the decision to reduce the Local Government fund, the money that localities send to the state and then are sent back to townships and local governments, by 50%. This move was a budget balancing effort to fill the $8 billion dollars deficit in Ohio’s budget.
From the Buckeye Institute, “The Local Government Fund and the state’s sales tax are hold-overs from the Great Depression and a time when local governments-like everyone else- were struggling financially. Over the decades, of course, the state revenues dedicated to the Local Government Fund, not to mention the precise distribution of those funds across jurisdictions, have varied dramatically.”
At the time, the move to cut the fund was looked upon with much skepticism by local governments. The fear of less tax money coming from the state might mean a need to raise local property/income taxes and/or a reduction of services.
Governor Kasich’s response, in an interview to the Cincinnati Enquirer Editorial Board, “All government have to be efficient. Governments have to work together, it can bring out the best for the tax payer. The simple fact of the matter is, innovation in government can sometimes be hard but when you do it you find out you save money, respond really well to what the tax payer wants and you can have success.” His suggestion was government efficiency and the sharing of services.
Many officials were not as optimistic as the Governor on the effect the tax cuts would have on local governments and the economic health of Ohio. Ross County Auditor Tom Spetnagel, critical of the cuts was quoted in the Chillicothe Gazette, “I was the city auditor at the time this happened, and Kasich’s cuts cost the city upwards of $1 million in annual revenue,” he said. “Kasich proudly called his budget the ‘Jobs Budget,’ but the jobs never came to Chillicothe. I called it the ‘Pass the Buck Budget’ because all Kasich really did was pass the state’s problems onto local government officials.”
A report came out this week from the Buckeye Institute analyzing the fiscal health of municipalities in the state since the local government fund tax reduction, paints a picture of economic health in many of our local governments. In fact, many of the local governments have improved economically since 2011. Some townships in the state have seen their revenue go down.
The Buckeye Institute for Public Policy Solution, a non-profit, non-partisan research and education institute, or “think tank” wrote the report entitled “Revenue Sharing Reform: On the Road to Ohio’s Recovery.” Buckeye analyzed revenue for the 88 counties, 251 cities and 689 villages. The report shows that the reduction in state spending has had little effect on revenue.
From the Buckeye Institute:
First, data from local governments show that the overwhelming majority of the state’s local municipalities are fiscally healthy. Local tax revenues have increased rapidly. Nine out of ten counties and nearly nine out of ten municipalities now have reserve funds that, in terms of percentage far outweigh the statutorily required reserve that Ohio maintains in its “rainy day” fund.
Second, the local government fund actually represents a small percentage of the overall amount of state support for local governments-roughly 2.5 percent of approximately $13.6 billion. Even before any of the so-called “draconian” reductions, the local government fund amounted to less than 5 cents of every dollar in total state support for local governments. It also only represented a little over one cent of every dollar in total local revenues. But by reducing payments to the local government fund the state gains flexibility to promote growth in other ways and encourages local governments to better prioritize spending and services.
The picture for Ohio’s 1,308 townships is admittedly more difficult to analyze, but current data suggests that the financial situation for townships may be slightly more negative than for counties and municipalities…. This may mean that townships may be more effected by modifications to the revenue sharing and Local Government Fund status quo.
The report concludes with a thought about what is needed to create economic prosperity in Ohio and if the reduction of the Local Government Fund puts us on the right track. “These reforms have the benefit of promoting economic growth and opportunity for the entire state while also fostering flexibility and fiscal responsibility. These measures should be encouraged and pursued more vigorously. The tax-and-spenders among us would have us believe that these reforms jeopardize our local governments, impose harsh choice on our citizens, and threaten local government insolvency. The facts show otherwise. Revenue share reform is working.”
Changes and reductions in government will need to continue in order to make Ohio economically viable.