MANSFIELD – A line item in Ohio’s 2018-2019 budget vetoed by Gov. John Kasich has the potential to strip Richland County’s general fund of approximately $1.5 million in revenue.
With local governments already losing a revenue source due to the end of a sales tax on Medicaid-managed care organizations, Ohio’s General Assembly included a plan to replace that loss of revenue. However, that plan was vetoed by the governor when he signed the budget bill just before the midnight deadline on June 30.
That revenue loss was discussed with Rep. Mark Romanchuk at Thursday’s Richland County Commissioners meeting. As a result, Commissioner Marilyn John warned other departments under the budget control of the Commissioners to have realistic expectations moving forward.
“For our budget cycle for 2018, we have to be prepared that (the plan) may not be approved,” John said. “We have to go into it under the premise that we will not likely receive that money. If it happens that it comes in next year, awesome, but we have no way of pushing for that.”
While the veto could be overridden, the general feeling among the commissioners was that local governments would have to do without the funding.
“While the governor can’t necessarily control this tax, what he did was veto the replacement, which would have put money back into the county,” said Commissioner Tony Vero. “Where I sit, it certainly seems to me that this governor’s ideology is not really focused on funding to the county level.
“It seems like quite frankly he doesn’t care.”
According to Romanchuk, the state imposed a tax on Medicaid-managed care organizations from 2005 to 2009. In 2009, the federal government warned Ohio this was not a broad-based tax. Instead of extending the tax to include healthcare organizations that were not Medicaid-managed, the state of Ohio decided to abandon that type of tax and instead impose a sales tax on Medicaid-managed care organizations in 2009.
“It was a risk, a huge risk, because there were only about five other states besides Ohio that decided to go in this direction with a sales tax,” Romanchuk said. “The advantage of the sales tax was it allowed the counties to take advantage of their piggyback tax, meaning whenever there is a sales tax on these specific Medicaid-managed care organizations, the county would get taxes from those as well.”
Unfortunately, that risk was realized in 2014 when the federal government notified Ohio that a sales tax on Medicaid-managed care organizations violated federal rules. The sales tax officially ended in Ohio on June 30, leaving Ohio with a gap in revenue funds.
“The House and Senate came together and came up with a resolution to fill that budget gap for local jurisdictions,” Romanchuk said.
To replace the loss of revenue from the sales tax ending, Ohio’s General Assembly proposed a new franchise fee taxing all health insuring corporations, not just those that were Medicaid-managed. The franchise fee would put the state of Ohio in compliance with federal rules, and the General Assembly proposed increasing the new fee from 5.8 percent to 7.2 percent to cover the sales tax loss to counties.
That franchise fee and 46 other line items were vetoed by Kasich as he signed the budget bill just minutes before the June 30 deadline. But the provision is not dead yet – the Ohio House overrode Kasich’s veto of the new franchise fee.
“What we put in the budget that was sent back to the governor was a provision that would require him to go back to the federal government and ask for a higher rate so we could help the local jurisdictions,” Romanchuk said.
This provision would require Kasich’s administration to ask permission from the federal government to raise the rate on the new franchise fee tax. Currently the limit on the tax is 6 percent, and the governor himself asked the federal government to raise the rate once already, in December 2016. The increase covered holes in the state’s budget, but did not extend to help the counties.
“The six percent fulfills almost to the dollar the amount of money that the state was missing,” Romanchuk said.
The provision suggested in the House’s override would require Kasich’s administration to write the franchise fee increase waiver in a way that would raise $207 million that would be distributed to all local jurisdictions. However, the administration warns such an increase is likely to be rejected because exceeding the 6 percent cap on such taxes would threaten $615 million in state revenue in the existing deal with the federal government.
This could put all Medicaid services in Ohio at risk, Romanchuk said.
Currently only the Ohio House has overridden Kasich’s veto of the new franchise fee tax. The Ohio Senate has delayed action due to members being absent.
If the Ohio Senate also overrides Kasich’s veto, the governor will be forced to move forward with requesting the tax rate increase waiver. However, if the Senate does not override the veto, the franchise fee tax will not go into effect.
Without the $207 million franchise fee revenue to local jurisdictions, Richland County stands to lose its slice of that revenue, equaling approximately $1.5 million in revenue to the county’s general fund.
“I’m not going to approve a budget that includes the $1.5 million in revenue the county stands to lose in our general fund,” Vero said. “I don’t know how we can sit in these chairs and in good conscience presume that we have that money, I think we have to budget as if we’re not going to get the money.”
To make up for the loss of the sales tax revenue that ended on June 30, the government will allocate two payments to local governments, one in November 2017 and one in the first fiscal quarter of 2018. The exact amount of those payments is unknown.
Commissioner Darrell Banks also expressed frustration at Kasich’s vetoing of a revenue source for local jurisdictions.
“For him to leave us out there hanging, it doesn’t sit well with me,” Banks said. “Somewhere along the line he’s got to remember that we’re following the laws and doing the things that state government has required us to do. We don’t feel the support.”
