Kasich’s $1 billion dilemma: save for a rainy day or cut taxes?


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Since my colleague brought up the potential for a surplus of funds at the end of this fiscal year, let’s talk about Kasich’s waffling about whether to cut taxes or save for a rainy day. This isn’t a hypothetical exercise – there are actually guidelines in state law that dictate what must be done in the face of excess revenue. The law is actually quite instructive if Governor Kasich would have a look; it doesn’t seem like he has as much of a choice about what to do with excess funds as he thinks he does.

Let’s start with a look at the law.

The Ohio Revised Code (ORC 131.43) establishes the Budget Stabilization Fund (aka “Rainy Day Fund”) and directs the state to maintain a balance of 5% of the prior year’s general revenue fund levels when there is excess revenue. It states:

There is hereby created in the state treasury the budget stabilization fund. It is the intent of the general assembly to maintain an amount of money in the budget stabilization fund that amounts to approximately five per cent of the general revenue fund revenues for the preceding fiscal year.

This section of the law is weird – it doesn’t require that the fund be replenished, it simply states that it is the intent of the legislature to do so. Whatever. What you need to know is that at the moment, the fund has a balance of less than two dollars. Yep, in case you hadn’t noticed, it’s been raining pretty hard in Ohio. So the fund is nowhere near the statutorily-required five percent. More on that later.

But first, there is another fund we should be award of – the Income Tax Relief Fund (ITRF). And the law on that one is a bit more clear (ORC 131.44 emphasis mine):

Not later than the thirty-first day of July each year, the director of budget and management shall determine the surplus revenue that existed on the preceding thirtieth day of June and transfer from the general revenue fund, to the extent of the unobligated, unencumbered balance on the preceding thirtieth day of June in excess of one-half of one per cent of the general revenue fund revenues in the preceding fiscal year, the following:

(a) First, to the budget stabilization fund, any amount necessary for the balance of the budget stabilization fund to equal five per cent of the general revenue fund revenues of the preceding fiscal year;

(b) Then, to the income tax reduction fund, which is hereby created in the state treasury, an amount equal to the surplus revenue.

This section seems pretty clear. In simpler terms, only after the state pays all its bills and puts 5% away in the rainy day fund, whatever is left over can and must be used to pay for income tax cuts in the amount of the balance of the ITRF. Shall means you gotta do it, no options, no waffling, no wavering. Legislative intent no longer applies.

Filling the Rainy Day Fund from its current balance of the price of a cup of coffee will not be cheap — just a little north of $1.3 billion. At this point, no one is speculating there will be that much money left over at the end of this fiscal year (which ends June 30); the best guess is there will be around $1 billion, but at least half of that will have to pay outstanding bills, leaving about half a billion for the Rainy Day Fund and nothing for tax cuts.

So as Kasich vacillates, the question is, will he ignore the law and go for a tax cut anyway? Will the legislature go along with him (a tax cut in an election year, you say?) or hold to the law that they just got passed in 1995 and amended in 2008? We’ll just have to keep watching.

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3 Comments

  1. Excellent summary. You might want to take a look at the technical language in the budget bill to determine if they have written it in such a way as to exempt themselves from using these two provisions (mandatory distributed to ITRF and BSF). Given that the Administration has indicated that they will make a number of payments that HB1 assumed would be paid in the next budget, it seems like a major portion of this surplus will be allocated to the last managed care payment and the 12th SSI payment.

  2. I’m not sure Kasich is looking to cut taxes via the Income Tax Relief Fund, which is mandate that just about every other Administration has managed to avoid through fund transfers. I’ve been assuming he’s talking about an actual cut of the effective rate.

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