State budget on its way to Gov. Kasich’s desk

State budget on its way to Gov. Kasich’s desk

The Ohio General Assembly completed its work today on House Bill 64, the state's two-year operating budget. The Ohio House voted in favor of the bill 61-34; the Ohio Senate had voted 23-9 in favor of the bill on June 25. The Conference Committee, comprised of six members from the House and Senate charged with resolving disagreements between different versions of the budget bill, met on June 24, with the hearing lasting until early the next morning.

As is often the case, the budget passed in a largely partisan manner. Republicans lauded the bill’s inclusion of increased funds for K-12 and higher education, along with tax cuts for all Ohioans.

“This is a balanced budget that supports our vision for making Ohio the best state to live, work and raise your family,” Sen. Keith Faber said.

Meanwhile, Democrats stood in opposition to the bill, saying it disproportionally benefits the wealthy and offers little for the working poor.

The bill now goes to Gov. John Kasich for his signature and any line-item vetoes, which must happen prior to June 30. The governor’s team has indicated that the many earmarks included in the bill will be closely scrutinized.

H.B. 64 provides $1.8 billion in tax relief with an across the board 6.3 percent income tax cut for all Ohioans. It also makes permanent a 75 percent tax cut on small business’ first $250,000 of net income and increases it to 100 percent in fiscal year 2017. The bill establishes a 3 percent flat tax on income above that.

One area of focus for the Senate was higher education. The bill includes a two-year tuition freeze along with a requirement that universities and colleges reduce student costs by 5 percent. The budget makes the largest state investment in state share of instruction in higher education in eight years.

The proposal invests over $930 million over the biennium in K-12 school funding. Based largely on the current formula, the bill ensures that no school district loses funding and drives additional dollars to low-wealth, low-capacity districts.

Tax on power generation eliminated

The Senate included a provision that was amended by the Conference Committee that will shift the tangible personal property tax (TPP) currently applicable to power generation equipment to a tax on the utility's transmission and distribution system. The end result is a revenue neutral shift in the tax payments from a tax on generators to a tax on distribution utilities. Customers will be paying the same amount that is currently passed through by the generators; the change is in how the tax is assessed and collected.

This amendment was supported by the utilities because it shifted cost from generation, a competitive service, to the regulated portion of the customer's bill. The language was crafted to ensure that the result is neutral to customers as well as the local entities such as school districts that depend on the revenue generated by the tax.

The language requires the tax commissioner to annually calculate the amount of tax that would have been paid by applying the TPP tax and then to calculate the amount actually collected from the applicable transmission and distribution assets. If there is a shortfall in revenue, the commissioner will "true up" the amounts owed by the utility and thereby ensure proper and timely collection and distribution of the tax revenue to the local entities which depend on it. The change in the application of the tax will begin in the 2016 calendar year.

Residency restrictions

One of the more contentious discussions in the budget surrounded the legislature’s desire to restrict municipal residency requirements on construction contracts. In recent years several large cities including Cleveland, Cincinnati, and Akron have imposed hiring quotas on construction contractors seeking to do business on city construction projects. Generally, these cities require a certain percentage of the construction workforce to live within that municipality’s geographic boundaries. The most high profile case is an Akron sewer project where the city required that contractors hire 50 percent of their workforce from within the city of Akron.

Construction contractor groups vehemently oppose these requirements saying that they are disruptive to their business practices, force them to hire undertrained employees, and increase the cost of construction contracts. Some labor groups such as the Operating Engineers of Ohio agree, while others like the State Building Trades Council either support or are neutral on the residency requirements. Cities defend the quotas, citing home rule authority and a desire to spur economic development within their cities. Public sector unions such as Ohio Civil Service Employee Association and American Federation of State, County, and Municipal Employees side squarely with the cities.

Recent legislative debate on the issue began in the transportation budget (HB 53) where both the House and Senate incorporated, but ultimately removed, prohibitions on residency requirements. Contractor groups responded by successfully convincing legislators in the House and Senate to introduce stand-alone legislation on the topic (HB 180 and SB 152).

The Senate included restrictions on residency requirements in an omnibus budget amendment, however, in a rare move; the Republican controlled Senate adopted a Democrat amendment on the Senate floor to remove the provision from the bill. The Senate then promptly passed SB 152, sending the bill to the House for consideration in the fall session.

Ultimately, behind the scenes maneuvering by both political parties and numerous affected parties influenced the legislature’s actions on this topic. Whether the legislature moves forward with prohibiting municipalities from imposing hiring quotas on contractors remains to be seen. However, it is clear the issue will not be dealt with in the context of the budget.

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