Will DeWine Increase Ohio's Funding for Local Governments? Outlook Cloudy

Cincinnati, Hamilton County and other local governments have taken big hits from cuts to the state's local government fund. Incoming governor Mike DeWine may not be eager to restore them.

Dec 11, 2018 at 11:22 am

click to enlarge Ohio Governor-Elect Mike DeWine - Provided
Ohio Governor-Elect Mike DeWine

It’s no secret: cuts made by conservative Ohio lawmakers under Republican Gov. John Kasich to the state’s so-called local government fund have had big consequences for municipalities across the state. The situation has even drawn national attention, including a lengthy story in The New York Times about Lorain, Ohio.

So will those cuts be reversed under incoming governor Mike DeWine, also a Republican? Don’t hold your breath.

Speaking at the annual meeting of the County Commissioners Association of Ohio yesterday, DeWine pledged new efforts to help local governments — but also pointed out that he never promised to restore the vital funding the state once poured into local government coffers, which dropped about $351 million a year during the tenure of outgoing Gov. Kasich.

Looking to shore up a state deficit and pay for state income tax breaks he said would stimulate the economy, Kasich cut the fund from 3.7 percent of the state’s tax revenues to just 1.7 percent shortly after taking office. That’s drawn ire from many urban municipalities, which say they collect more in sales taxes for the state than they get back.

Yesterday, DeWine may have signaled he wouldn’t drastically change course.

While he said that Ohio is “a local government state. I like that. I’m not going to change that,” he also said that help for municipalities would come in very targeted forms — funding for children’s services, for example, or multi-jurisdiction drug task forces.

“I was very careful during the campaign not to say that I’m going to restore the local government fund to a certain level,” he said. “What I have said is that we’re going to be a good partner. We want to work with you.”

But what that means is slippery. DeWine was a bit more positive about local government funding back in October, when he was running a tight-polling race against Democrat Rich Cordray. At the time, he told the Cincinnati Business Courier he would like to "do everything we can" to raise local government funding.

The fund, which was created in the 1930s to make up for the creation of a statewide sales tax, is a big deal for Cincinnati, Hamilton County and a number of other urban city and county governments.

The cuts, plus state lawmakers’ elimination of Ohio’s estate tax and some tax reimbursements, cost Cincinnati and other urban municipalities millions. In 2011, Cincinnati got more than $25 million from the local government fund and another $15 million from estate tax that the state legislature has since eliminated. By 2018, the city was receiving just $12 million from the local government funds and zero from the estate tax, which ceased in 2015.

Hamilton County lost $66 million in similar state funding between 2011 and last year, Hamilton County Auditor Dusty Rhodes has said.

Local officials say the cuts have played a role in blowing big holes in local budgets. Cincinnati, for example, could see a $19 million deficit next year, and county commissioners are wrangling with their own $29 million deficit. Municipalities have eyed measures like sales tax hikes — which are more regressive funding mechanisms that often fall harder on lower-income residents — and tax levies as a means to fill the gaps. Hamilton County Commissioners, for example, voted to increase the county’s sales tax earlier this year before backing off due to pressure from anti-tax conservatives.

County Commissioner Denise Driehaus tied the shortfall to reductions in state and federal funding.

"The federal government and the state government, in my view, have shifted the tax burden to local communities," she said.

Last year, the state legislature mulled changes that would have cost Cincinnati even more in state government funds, drawing pushback from city officials.

“The assault on local government has got to stop,” Mayor John Cranley said in a statement responding to that proposal. “Cincinnati is a net donor to the state's coffers. They are taking from us and giving to others.”

Hamilton County does seem to produce more tax revenue for the state than average. While the county’s 810,000 residents account for about 7 percent of the state’s 11 million people, the county’s sales taxes accounted for more than 8 percent of Ohio’s overall sales tax receipts in 2015. It contributes even more to the state’s income tax collections — about 10 percent of the state’s take annually.

The cuts to the local government fund were enacted to pay for reductions in income tax rates for individuals and businesses put in place during Kasich’s tenure. Kasich’s office has criticized analysis of the cuts to the local government fund that don’t take into account increased income tax receipts.

However, local officials say income tax receipts in places like Cincinnati haven’t increased enough to pay for the reductions, and it’s clear that the cuts to the fund have made it more difficult for local municipalities to keep their financial houses in order even as the national economy — and some local economies — are booming.

Ire around the skimpier local government fund has grown as the state stacks cash in its reserve account. That rainy day fund hit $2.7 billion this year — close to the limit ascribed by state law. Kasich defended the decision to stash the money away instead of flowing more money to local governments.

“You know how many times politicians wanted us to spend this, this $2.7 billion?” he said in July as the state deposited the money in the rainy day fund. “You know, how many times, ‘Come on! Give me more money?’ OK? That’s what I worry about in the future.”

But local officials have their own take. The Ohio Mayors Alliance, which represents top elected executives from big cities in Ohio including Cincinnati, fired back at Kasich.

“Reasonable people can disagree on the best use of Ohio’s rainy day fund,” the group said in a July statement. “However, as a bipartisan coalition of mayors, we find it unfortunate that Gov. Kasich doesn’t see the value of Ohio’s cities and small towns. While we’re dismayed by this overly-hostile rhetoric, we’re encouraged that both gubernatorial candidates have been signaling a much more cooperative tone.”

DeWine’s remarks yesterday, however, raise some question about how eager the incoming governor will be to loosen up the state’s purse strings.

This story has been updated with statements about the local government fund DeWine made prior to the election.