Posted: 4:58 p.m. Sunday, Feb. 3, 2013

Tax reform expected in Kasich budget plan

Plan to include long-awaited decision on whether to expand Medicaid.

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Kasich wants to hold State of the State in Lima
Tony Dejak
FILE-This Tuesday, Feb. 7, 2012 file photo shows Ohio Gov. John Kasich delivering his State of the State address at Wells Academy/Steubenville High School in Steubenville, Ohio. Kasich plans to deliver his annual State of the State speech in Lima, taking the address outside the capital city for the second year in a row. If lawmakers agree, Kasich will deliver the speech at Veterans Memorial Civic Center on Feb. 19. (AP Photo/Tony Dejak, File)

By Laura A. Bischoff and Andrew J. Tobias

Staff Writer

COLUMBUS —

Reforming the tax code for all 11.4 million Ohioans, reallocating education funds for 2.2 million students in kindergarten through grad school, and making a decision on whether to expand Medicaid for an additional 450,000 low-income residents will be part of Republican Gov. John Kasich’s budget proposal to be unveiled today.

Then the real fun starts as the legislature dives into the plan.

Kasich last week repeatedly declined to answer questions about the budget, including whether he plans to lower the sales tax rate. The state sales tax rate is 5.5 percent but local entities can levy additional amounts so the sales tax ranges from a low of 5.75 percent in four counties to a high of 7.75 percent in Cuyahoga County. It brings in about $8 billion a year to the state coffers.

The budget will be a blueprint for Kasich’s vision for the state as he shifts into re-election mode next year and it will dictate how some $55 billion will be spent out the general revenue fund and another $62 billion will be spent out of other state funds. Kasich’s plan will also show his plans for the state budget surplus, which is reported to be nearly $1 billion.

Kasich’s first budget unloaded bombshell changes: privatizing prisons, replacing the development department with a private job creation organization, slashing funds to local governments and recasting how Medicaid operates. This time around, Kasich has already shaken up the status quo by proposing a new K-12 funding plan that offers more money for low-income districts, for educating gifted and disabled students and for sending children to private schools.

The plan received rave reviews from charter school leaders; Democrats and other past opponents to Kasich education reforms said they will be able to comment further when actual details of the plan are released this week.

Everyone wins?

Kasich touted the $15.1 billion education budget as a plan where everyone wins. The new school funding formula aims to equalized poor and wealthy districts by making up the difference between what districts generate from local levies and what they would generate if property values were $250,000 per student. Kasich said only 4 percent of Ohio school districts have values that high or higher.

The governor told Ohio superintendents on Thursday no school district will receive less money under the new formula than they did last year — words of relief to school leaders struggling to balance budgets and pass new levies. He also pitched a $300 million program to reward districts that innovate in a way that reduces costs and several add-on targeted for gifted students, special education and poor students.

“This is not hard to figure out,” Kasich said. “If you are poor, you’re going to get more. If you are rich, you’re going to get less. If you have gifted students, you’re going to get more. If you have disabled students, you’re going to get more.”

The 2014-15 budget will also include a new way to calculate funding for colleges and universities, based on recommendations from a commission led by Ohio State University President E. Gordon Gee.

In it’s November 2012 report, the commission recommended basing funding more on completion than on enrollment, specifically 50 percent based on degree completion instead of 20 percent. It also recommended counting out-of-state students in the formula if they stay in Ohio after graduation.

Kasich backed the recommendations and has touted the formula as one-of-a-kind.

Rebuilding the safety net

There is a chorus singing loudly in favor of Kasich expanding Medicaid, which is a health care program currently covering 2.2 million poor and disabled Ohioans and costs $19 billion a year in state and federal money. Under the federal Affordable Care Act, also known as Obamacare, if states opt to expand the eligibility rules for Medicaid, the feds will pick up 100 percent of the tab initially and then dial it back to a 90 percent match in the outlying years.

Kasich said last week that he views the Medicaid expansion question separately from Obamacare, which he opposed. He said the expansion could bring $14 billion flowing back into Ohio communities, hospitals and doctors’ offices over the next several years and it could rebuild the safety net for the mentally ill. His biggest concern is whether the federal government will keep its funding promise.

Kasich said his director of the Department of Mental Health, Tracy Plouck, told him that expanding Medicaid would help rebuild the safety net for mentally ill Ohioans.

If Kasich decides to expand Medicaid, an additional 450,000 low-income Ohioans may be eligible. Civic groups, advocates for the mentally ill and local governments are in favor of the expansion, saying it’ll extend coverage at little cost and reduce uncompensated charity care that hospitals currently shoulder.

“After reviewing the likely effects of an expansion, it seems that there are many winners. Between the positive impacts to the economy, the ability to get more people into preventative care rather than emergency room care, and providing a much needed boost to our behavioral health system, expansion seems like the common sense thing to do,” said County Commissioners Association of Ohio Executive Director Larry L. Long.

The Health Policy Institute of Ohio, Ohio State University, REMI and the Urban Institute issued a report last month that concluded that the state would save $1.4 billion between 2014 and 2022 and then break even in the outlying years if it were to expand Medicaid.

The Buckeye Institute, a conservative think tank based in Columbus, however, questioned that study and gave a half dozen reasons not to expand Medicaid. The Buckeye Institute warned that there is no guarantee that the federal government will stick with the promised funding levels, the state will incur more administrative costs and some studies show worse health outcomes for patients on Medicaid than those no health coverage at all.

Tax changes likely

The governor, who has long said he wants to reduce personal income tax rates to help spur business development, is likely to call for tax changes in his budget bill.

Ohio’s budget relies on a combination of business, income, sales and “sin” taxes.

The two biggest by far are the individual income tax and sales tax, which brought in $9 billion and $8.3 billion, respectively — about 73 percent of Ohio’s $23.8 billion in tax collections in fiscal year 2012, according to the Ohio Department of Taxation.

While Kasich has declined to provide specifics, he has made clear that he plans to make another pass at trying to pass an income tax cut, paying for it by increasing taxes on the oil and gas industry.

Kasich last year proposed imposing two new taxes on natural resources harvested through “fracking” — 1 percent on natural gas, and 1.5 percent initially on crude oil. The crude oil tax would increase to 4 percent in later years. But Republicans in the state legislature axed the plan amid concerns that it would discourage economic growth and hurt farmers who signed land deals where drilling was taking place.

Kasich told reporters last week the tax won’t be so high that it will drive away the oil and natural gas companies that have already invested between $2 billion and $3 billion in Ohio.

“And you know why? Because there’s oil in the ground, and they want it. And either some of Ohioans are going to share in the bounty of what the Lord put in the ground, or they’re taking their stuff back to Texas and Oklahoma, and we all pay higher taxes,” Kasich said.

Without specifying which ones, Kasich also hinted that his budget would seek to close “loopholes” that exempt certain types of services from taxes.

It’s also rumored that Kasich will reduce the sales tax rate.

Ohio Senate President Keith Faber, R-Celina, said Republicans have in the past discussed lowering the overall sales tax rate by eliminating tax exemptions on certain services.

“If you can expand the base and lower the rate, that’s appealing,” Faber said.

The last Ohio governor to enact major tax reform was Republican Gov. Bob Taft in 2005. Starting then, Ohio gradually reduced its income tax 21 percent over six years under the premise that the lower rate would be more appealing to businesses.

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