Understanding the state budget
How did we get to this?
Ohio must develop a budget that addresses growing needs in a shrinking economy. As a result of the current recession, Ohio tax revenue dropped by 12 percent in 2009 and estimates suggest it could continue to fall. In the past 50 years, tax revenues have declined four times and never by more than 3 percent. Budget projections indicate that the next two-year budget cycle could be short $4 billion each year.
While the recession has resulted in fewer resources, it has created higher expenditures in areas such as welfare assistance, human services, Medicaid and corrections. Ohio was fortunate in being able to respond to these challenges through a series of one-time changes. For example, the legislature delayed the rollback of the state income tax, adding about a billion dollars.
How does the State of Ohio go about developing a budget to meet these challenges?
In some ways, Ohio's operating budget is similar to your personal or family budget. Your household budget is made up of two things - money coming in (income) and money going out (expenses).
Your income could come from your job or business, private retirement or Social Security, investments, unemployment or other public assistance programs. Your expenses are allocated to things like rent or mortgage, food, utilities, car or travel expenses, health care, education and maybe even some leisure. In addition to the money you use to live on, many households have assets, such as a savings account, a car or a home.
It is your job to balance the budget and maybe even create a budget surplus. Sometimes, either because of the loss of income due to unemployment or other family emergencies, or as a result of high expenses caused by sickness, accidents or just bad luck, you have to alter the budget or use your assets.
While the portion of Ohio's budget funded by state revenues (about $26 billion in 2009) is obviously larger than our households', the basic idea is the same.
All states generate revenue through taxes and user fees. In 2009, Ohio's two biggest sources of tax revenue came from the personal income tax (37.5 percent) and the sales tax (33 percent), accounting for more than 70 percent of the tax revenue of the state.
A series of other taxes such as the motor vehicle fuel tax (7.9 percent) which can only be used for road maintenance or construction, a business tax called the commercial activity tax (5.3 percent), the cigarette and alcohol tax (4.6 percent) and a utility tax (3.6 percent) generate most of the other revenue funds.
In addition to revenue generated by the state directly, Ohio also receives support from the federal government, which in 2009 added about $19 billion to the state budget, bringing the total state revenue to almost $46 billion.
Just like your household, the state spends money to meet the needs of its constituents, in this case the citizens of Ohio. A big part of state funds go to primary and secondary education (41 percent) and higher education (12 percent). Health and human services, including Medicaid, take up about 21 percent of state funds, corrections and police take up 8.3 percent and transportation takes 3.4 percent. Finally in 2009, Ohio spent 14 percent of its state revenues on community and economic development.
The majority of the funds spent by state government are allocated for services provided in local communities, such as education, human services, police and libraries. The state also uses its funds for property tax relief at the local level. Programs focusing on special populations serve a large number of Ohioans. For example, the Department of Aging provided in-home services to 36,000 older people; 68,000 individuals received congregate meals and 47,000 older people received home-delivered meals.
Ohio's budget is prepared every two years by the Office of Budget and Management (OBM), based on the governor's recommendations. Then the legislature will pass the budget, usually with modifications. The governor will then either approve or veto (entirely or by line item) the budget. After that, it is returned to the legislature and any vetoed items can be brought to a vote. A three-fifths majority is required to override any vetoed item.
The bill must be signed by July 1, the first day of the new fiscal year. The Ohio constitution does not allow the state to borrow money for operating expenditures. However, by law, the operating budget must be balanced each budget year.
Source: State budget solution neither clear nor easy, Understanding the state budget, AARP
The Ohio Department of Aging thanks AARP for contributing to this article.