Governor John Kasich stepped into a near no-win situation when he became Ohio’s chief executive in 2011. The state budget was in a major red situation, the state’s unemployment rate (while improving) was still at 9.0%1 and its system of funding public education had been declared unconstitutional almost fourteen years prior.2 Instead of repeatedly referring the mess as a product of previous administrations, he began to conquer the near-impossible.
He has devised a coordinated plan which moves toward a balanced budget, helps small businesses rebuild the state’s economy and also changes the funding of public education to a way that is likely to be constitutional and fairer.
Unlike Gov. Bobby Jindal of Louisiana who took a one-sided approach,3 Gov. Kasich is offering a blended solution. For starters, the state income tax would drop by 20%.4 This makes everyone happy.
The state sales tax would be lowered from 5.5% to 5%,4 but it would be broadened to include an additional 81 services not currently covered by the state sales tax. This makes some unhappy. Examples of the newly taxed services are: accounting and bookkeeping, architectural and engineering, interior design and decorating, cultural and professional sports, and investment counseling.5
Naturally, those who use or offer these services aren’t totally pleased about it. We have to remember, however, that Kasich is also dealing with a negative budget. Realistically, one cannot just cut rates for almost everyone except for a select few and expect to balance a budget. I know, someone promised this unreality and won reelection last November, but it doesn’t work that way in the real world! Those opposed to this change then try to switch the focus from their self-interests and claim that it hurts the poor of society. (Sound familiar?) True, it will impact everyone to some degree. But, in what proportion due the lower income groups use commercial art and design services, custom software programming, overnight trailer parks, accounting/ bookkeeping and horse boarding and training?
The JournalNews comment on Kasich’s February 19 “State of the State” address: “Opposes Obamacare but says expanding Medicaid will benefit Ohio by extending health care to more people and bring in billions of dollars in federal aid.”4 He accepts the fact that Ohio went for Obama in last election and many supported the Affordable Care Act. However, he also knows he needs a program which is not so aligned with the flawed Obamacare that he loses his centrist and conservative base of support. He should have it here with this smart approach.
Kasich’s proposal will expand Ohio’s Medicaid (a state and federally funded program) by adding 265,000 to the 2.2 million already enrolled plus another 230,000 currently eligible but not enrolled who are expected to do so. The 7-year expansion is projected to cost $13 billion. The federal government will pick up 100% of this increase initially, then drop back to 90%. Ohio’s plan costs $19 billion now.4
From the 1970s through 2009, the “foundation formula” per pupil was used to fund schools combining both state and local taxes. As the Enquirer reported, “For years the state assumed a certain amount would be generated from local property taxes and it subtracted that to calculate how much the state sent to school districts. Sometimes the state’s calculations included “phantom revenue” – funds it assumed districts would raise locally but that didn’t materialize.”6
The Kasich plan would use “core opportunity aid” to distribute funds. It would ensure that every school district which levies at least 20 mills ($20 for every assessed $100,000 in property value) in property taxes would generate the same as a $250,000 per pupil property tax base school district. Currently, only 4% of Ohio school districts exceed the $250,000 amount. A “targeted assistance” would be added to ensure that districts with low-income residents amidst some higher property tax values would still benefit. Also, districts which have many students learning English as a second language would receive $1,500 per student in the first year with amounts decreasing over time.6
-Widened State Tax-
The concern for widening the services which would be covered by the state sales tax has already been mentioned. This would affect both individuals and businesses. To reiterate, a budget wth severe red ink cannot be balanced through tax reductions for the vast majority and large increases for the “privileged.”
-Small Business Tax Cuts and Jobs Creation-
The Kasich plan would help small businesses according to Tom Cooney and Crystal Faulkner.7 Besides the elimination of Ohio’s estate tax which would also help individuals, Kasich’s proposal would reduce taxes for many small businesses including S corporations, partnerships and sole proprietors.7
However, there are those who dispute this tax relief will create greater employment. They use a 2011 study by two University of Chicago economists which determined that most small business owners are individual craftsmen and professionals who have little desire to grow. Or as they wrote, “Most firms start small and stay small throughout their entire life cycle.” Zach Schiller, research director for Policy Matters Ohio, said, “The notion that they’re going to run out and hire a lot of people is mistaken. They wouldn’t get enough [through lower taxes].” Others claim that since most small businesses are often one or two person operations. These tax cuts wouldn’t increase jobs, but instead, “shift the state’s overall tax burden from the wealthy to the working poor and middle class.8
Not having an MBA, I am not able to crunch the theoretical numbers to prove whether the naysayers or Kasich will be correct. Nevertheless, I am a little puzzled by this assertion that Kasich’s reduction of taxes for small businesses may be both a wasted effort and unfair. Weren’t small businesses a point of contention in the Obama-Romney campaign? Each recognized that the greatest job growth does not come from the mega-corporations. Romney, the “friend” of big business just because he’s a Republican, wanted to help small business. Obama, the perceived “champion” of the little guy because he’s a Democrat, won some industrial swing states by sending bailouts to large car companies9… Perhaps this makes sense after all. The 51% of pro-Obama Ohio voters10 wanted a Democrat who helps union workers even though it helps big business; therefore, they’re against helping small businesses because it really doesn’t help the little guy, it just makes the rich richer… Or something like that… Nightmares are made of this.
Governor Kasich is attempting to do what the three previous elected Ohio governors had not been able to do11: tackle the problem of unconstitutional state funding of public schools. He arrived at a plan which should improve the status of poorer school districts which show some effort to assess property adequately without harming the more affluent districts. His plan also provides assistance for all-day kindergarten programs, charter schools, “gifted education funding,” programs to work with severely disabled students, etc.
Still, there are criticisms: “Unfortunately, the proposed funding in this plan is a mere drop in the bucket compared to the $1.8 billion Gov. Kasich cut from schools during his last budget” (Ohio House Democratic Leader Armond Budish), the plan “does nothing to assure that students have enough resources to meet higher standards and expectations” (Andrew Benson, exec. Director of Ohio Education Matters), “the state has already sent us many new unfunded mandates like the Third Grade Reading Guarantee…” (Greg Power, Little Miami Schools Superintendent)6. See, Governor Kasich, you were supposed to promise everything like the President. [Granted, unfunded mandates may be a strain on already taut budgets. But the THIRD grade reading ability?12]
Thankfully, some see the benefits of the governor’s proposal. Krista Ramsey wrote: “Granted, it won’t undo all of the damage done by decades of underfunding the most essential period in childhood learning… But the new state money.. can be a shift toward wiser, deeper, more sustainable education policy and reform.” And, from Mary Ronan, superintendent of Cincinnati Public Schools, “I like how (the governor) is looking to make schools more efficient.” She also said if the state lives up to Kasich’s promise, then CPS will no longer be penalized for having Downtown businesses which make the district “property wealthy” in the view of the state.13
A Bloomberg National poll of 1,003 adults taken February 15-18 showed 55% approved of the President, his highest rating since September 2009.13 The Quinnipiac University poll taken in December showed Kasich’s approvals vs. disapprovals at 42-35%.14
Conclusion: It’s tough to win the favor of constituents when many aren’t satisfied unless they can have their cake and eat it, too. There are consequences in life for everything, including fiscal disasters. A price must be paid and, unfortunately, no one is exempt (contrary to what Obama’s supporters want to believe).
Governor Kasich had a mountain to attack when he took the oath of office. If the majority can give a second term to a President with a poor resume since he began in “public service” years ago, then how about a little cooperation for a governor who is taking logical steps to fix more problems in Ohio?
1 – www.google.com/publicdata
2 – “On March 24, 1997, Justice Francis E. Sweeney wrote for the 4-3 majority: ‘By our decision today, we send a clear message to lawmakers: The time has come to fix the system. Let there be no misunderstanding. Ohio’s public school-financing scheme must undergo a complete systematic overhaul.’” (Jim Siegel and Joe Vardon, “15-years — no school-funding fix,” www.disptach.com, 3/25/2012)
“Some continue to argue that the state’s school-funding system remains unconstitutional, but the Supreme Court has not ruled on the matter since the court handed down its fourth decision against the state in December 2002, when the majority also surrendered jurisdiction of what became known as the “DeRolph” case, after the parent who filed it. (www.dispatch.com, 3/12/2012)
3 – Gov. Jindal’s proposal eliminates the state income tax which sets up the state’s sales tax for an as yet unannounced increase, but one which is likely to be drastic and more likely to hurt those with lower income. (“Louisiana State Sales Tax Proposal Hurts Lower Incomes and GOP’s Image,” www.CartaRemi.wordpress.com, 1/16/2013)
4 – Laura A. Bischoff and Jackie Borchardt, “Kasich Focused On Taxes And Medicaid,” Hamilton JournalNews, 2/20/2013
5 – Paul E. Kostyu, “Kasich plan widens sales tax,” Cincinnati Enquirer, 2/7/2013. Quotes included: “Gov. John Kasich has a great vision on how to change Ohio and grow our economy… I look forward to working on this budget and to keep the momentum going.” – state Rep. Mike Henne (R, Clayton) and “The tax proposal is regressive and it is not so much a tax cut as a tax shift.” – state Rep. Fred Strahorn (D, Dayton).
6 – Denise Smith Amos and Jessica Brown, “Is Kasich school funding enough, ”Cincinnati Enquirer,2/1/2013
7 – “Businesswise” column in the Cincinnati Enquirer, 2/14/2013
8 – Jim Siegel (Columbus Dispatch), “Kasich believes tax cuts will create jobs in Ohio,” as printed in the Cincinnati Enquirer, 2/20/2013
9 – “In the end, there is no overestimating how large of a role that the auto industry bailout played in President Obama’s reelection. And that means the health of the industry and its employees, many of whom are represented by the United Auto Workers union, will likely remain near the top of the agenda in Obama’s second term.
In Tuesday’s vote, Obama swept Gov. Mitt Romney’s native Michigan and the rest of the industrial belt where Detroit automakers and their suppliers are centered. The one exception was Indiana, home to factories belonging to foreign brands like Honda and Subaru.
In winning Ohio by a small margin, Obama tapped heavily into the northern areas of the state where the auto industry plays a large role. The bailout that kept General Motors and Chrysler Group alive was a key issue in those areas.” (Chris Woodyard, USA Today, 11/7/2012)
10 – Final election results from www.cnn.com, 12/10/2012
11 – The court ruling came in the last two years of George Voinovich’s term. Bob Taft and Ted Strickland followed. Not counted among the non-solution governors was Nancy Hollister who, as lieutenant governor, served for the eleven days between Voinovich’s move to the Senate and Taft’s swearing in. (Wikipedia)
12 – “Ohio’s Third Grade Reading Guarantee says that starting with students entering third grade in 2013-14, schools cannot promote to fourth grade students who score below a certain level on the state reading test. That level is slightly below the actual passing score on the state reading test, the Ohio Achievement Assessment.
Exceptions apply to students who are learning English and in special education programs and to students who have been behind in reading in past years, have been held back before and have received extra help. Students can also be promoted if they pass a state-approved alternate reading test, i.e., a different test from the OAA.” (www.stateimpact.npr.org/ohio/tag/third-grade-reading-guarantee)
13 – “Call for early learning funding is good news – and good business,”
Krista Ramsey, Cincinnati Enquirer, 2/3/2013
14 – Mollie Reilly, The Huffington Post, 2/21/2013
15 – Sean Sullivan, www.washingtonpost.com, 1/8/2013