Budget Report Card: Month 1 of 24

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July represented the first month of the newly-passed state budget. Recall that the budget was finally put to bed at the end of June. At the time, revenue and spending estimates for the year beginning July 1 were revised and finalized. So now, a little more than a month later, as John Kasich takes a very public victory lap for balancing the budget, we finally get our first glimpse at how well those estimates are holding up.

First, a little background about how information about the state’s budget performance is made public. On the fifth day of each month, the Office of Budget and Management (OBM) releases a table detailing how well the state’s various tax and other revenue collections did compared to the estimate. I’ve been unable to locate these files online anywhere, other than media reports of them. Here is July’s.

On the tenth of each month,  the OBM director is required to release a detailed financial report, outlining how well revenue and expenditures performed versus estimates. These can be found on the OBM website. Finally, the Legislative Services Commission publishes a monthly report called Budget Footnotes, providing a somewhat nonpartisan “second opinion” about the month’s financial result. This document typically comes out mid-month, though the one for July is still not posted.

So what did we learn in July?

Only one month after finalizing revenue and spending projections in the budget process, it appears the administration was slightly overly optimistic. The day before OBM’s revenue numbers came out, the Governor was already cautioning that there might have to be a budget fix due to insufficient revenue collections. The table itself showed that a number of taxes brought in less in July than had been forecast in June. Either the administration is not very good at forecasting, or things went south rather quickly to have its revenue estimates turn out to be inflated only one month into the budget. In the financial report, the administration explained away most of the shortfalls to timing issues (month-end falling on a weekend, for example), but this did not explain the shortfall in monthly income tax withholdings. Plain and simple, if withholdings are lagging, it means Ohioans paychecks are getting smaller, or there are fewer of them earning income.

Another interesting finding in the OBM report was the fact that Medicaid caseloads are substantially higher — over 27,000 people — than was predicted only a month earlier. That’s a big number. A big chunk of the “$8 billion” deficit (not worth debating again, so let’s take them at their word) was covered by aggressive cost savings estimates from the Medicaid program. We’re talking $1.5 billion. So if you have nearly 30,000 people more than you expected just a month ago receiving services from the program, it’s going to be extremely hard to deliver the type of cost savings that were promised in the budget. This is going to be an area to watch closely in future months.

One item that was not in this month’s financial report: actual expenditures versus the forecast. The first month of a new two-year budget period is spent by OBM working with agencies to spread their annual appropriations across 12 months. Some months might have more expenditures than others, and it all must be planned. Until those plans are locked down, we won’t know if agencies met their cost savings expectations the budget was built upon. This will be another key item to watch in the August report.

Finally, a look at the General Revenue Fund balance. The OBM report indicates the state started the fiscal year with over $400 million in the GRF. But after expenditures of $3.6 billion and revenues of only $2.2 billion, it sure looks like the state is now running close to a $1 billion deficit. This is not illegal, nor is it unprecdented. Some months have higher revenue collections than others. But the statutory limit is a deficit of $2.7 billion (10% of the prior year’s revenue), so another two months like July and Kasich’s threat of a new budget would become reality without some self-imposed austerity measures by the administration.

For July, we’re going to give the Governor and his Budget Director an “incomplete.” Without spending reports, we can’t assign a score to the state’s spending discipline. The revenue is certainly discouraging, and with unemployment up for the second month in a row, we might be looking at continued underperformance. We’ll be watching.

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