Montgomery County stands to lose $8 million — almost 10 percent of its annual sales tax revenue — when the state stops collecting sales taxes from certain health care organizations.
The federal government is ending the state’s collection of sale taxes on services from Medicaid managed-care organizations — such as Dayton-based CareSource — as of June 30, 2017.
Ohio stands to lose $558 million in fiscal year 2018 and FY 2019 — a total of more than $1 billion over two years — and county governments are looking at losing $195 million, according to the Ohio Office of Budget and Management (OBM).
According to the state, Montgomery County took in $7.2 million in Medicaid Health Insuring Corp. sales taxes from the state in calendar year 2015 — about 9.2 percent of the county’s sales tax revenue, and up from $5.4 million in 2014.
Montgomery County estimates that its revenue loss beginning in the 2018 budget will be about $8 million.
“That’s a big chunk of money,” county commissioner Debbie Lieberman said. “We’re hoping for the best. But we’re going to take a look at this.”
Butler County saw just over $3 million in those Medicaid sales taxes last year, up from about $2.2 million in 2014. Warren County saw nearly $1.3 million in the taxes in 2015, up from $712,000 in 2014, according to state data.
Clark County, meanwhile, saw $3.2 million in those sales taxes in 2015, up from $2.2 million in 2014, state data show.
Transit agencies in Ohio would be among the hardest-hit when the tax goes away.
“We expect the potential loss to be $3.6 million annually,” Mark Donaghy, chief executive of the Greater Dayton Regional Transit Authority (RTA), said in an email.
RTA’s overall annual budget is $65 million. The agency has 658 employees.
Donaghy said RTA leaders have just started work on the next budget year, and they have a five-year projection “which will likely have a shortfall as a result of this challenge.”
He said RTA’s first effort will be to see if there is a revenue answer at the state level. But that’s something everyone across the state will want, he noted.
Short of that, if RTA has to fill that gap, it will likely result in service reductions, including routes being cut or changed.
Donaghy was unsure how the issue could impact contract talks with the Amalgamated Transit Union. For more than a year, the agency has been in talks with its union, which represents more than 400 drivers and technicians.
The tax in various forms has a history going back to at least 2005. But in 2014, the federal Centers for Medicare & Medicaid Services ruled that applying a sales tax only to managed-care organizations dealing with Medicaid patients was not allowed. Ohio has until the end of this two-year budget cycle to deal with the issue.
State leaders are aware of the issue, and the Office of Budget and Management has been communicating with county governments, OBM spokesman John Charlton said.
“This is a significant budget issue for the state, counties and transit authorities that we have to work through,” he said. “This change will have an impact and we must take that into account as we work through the development of the next operating budget.
“We don’t have any solutions in place yet.”
Lieberman, a board member of the County Commissioners Association of Ohio, met about three weeks ago with fellow board members and the director of the Ohio OBM office, Timothy Keen, to talk about the issue.
“He said, ‘We’re going to work on something. What it is, we don’t know,’ ” Lieberman recalled.
The change is especially hitting counties that have more people on Medicaid, she said. Lieberman said it is too soon to talk about potential cuts. But since the issue affects state government as well, she’s hoping some sort of solution can be crafted at that level.
“Next year in the (budget-making) process, we’re going to have to be very cautious,” Lieberman said.
Brad Cole, managing director of research for the County Commissioners Association of Ohio, said he expects the Kasich administration to craft some solution, but he said counties will need to do their “due diligence” on how the shortfall affects their budgets.
“They (the Kasich administration) will propose a solution as a part of the next state budget,” Cole said. “That’s what we’re anticipating, a joint solution to the problem.”
Ohio administers a 2.7 percent hospital franchise fee, a 5.5 percent nursing facility franchise fee and a 1 percent health insuring corporation tax (which is the tax that will end).
“I’m sure they’re (the Kasich administration) going to be looking at those (taxes) as well as other options,” Cole said.
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