The media, due to nothing else but bare repetition by Kasich, continues to report that the Kasich budget “solves” an $8 billion deficit.  Except, the media has never bothered exploring exactly how one reaches that number… and just how implausible of a basis that is.

Back on March 24th, the Director of the Office of Budget and Management Tim Keen held a press gaggle/conference in which he tried to explain how the State was solving a supposed $8 billion deficit while increasing General Revenue Fund spending by over $5 billion.

Here’s the baseline that Keen said they came up with the deficit:

imageThe blue bars are the “initial baseline revenues” which was essentially the revenues under Governor Strickland’s budget minus any federal stimulus and other one-time money.  (In reality, the stimulus was only $3 billion of these figures.)  The red bars represents general revenue spending under Strickland’s budget including spending that was paid for by the stimulus.  This creates a “deficit” of $7.7 billion ($4.1 billion gap plus the $3.6 billion gap)… at least it appears to.

You see to treat the $7.7 billion gap as a true measure of the deficit, you have to believe that there was no natural replacement for any of the stimulus money.  But that’s not an assumption the Administration makes.  The Kasich Administration and the House Republicans have projected that over the next two years, Ohio’s economy will grow enough that it will be able to collect nearly a billion more in tax revenues.  In other words, through no act of their own, the economy alone will reduce the deficit by 1/8th of the figure the Administration claims to roughly $6.8 billion, which is actually smaller than the deficit Strickland faced in his last budget.  The nonpartisan Legislative Service Commission has forecast that Ohio’s economic recovery is actually even stronger.   It suggests the State will like generate $125 million more in GRF tax revenues than the House GOP and Kasich Administration projects.

Kasich likes to pretend that there’s been a status quo of “structural deficits” in Ohio, that his budget is the first to fix it, and that the State has never faced a deficit this big.  Wrong on all accounts.  If anything, the last budget was far more trickier because the deficit was larger, the expectation of growth was negative, the Governor’s party didn’t control the whole legislature, and there was a gubernatorial election on the horizon.  Using Keen’s baseline, I guess, any Governor would argue that there’s technically a structural deficit because if you always take out the one-time money off the revenue side of the equation, but keep the spending, you will always start with an imbalance, just as Kasich will when he does his second biennium budget  because there’s always one-time money that’s going to pop up in any budget, just as there’s a billion in Kasich’s from his various privatization schemes.

How does Kasich claim, then his budget, ends this?  He predicts future economic growth will be sufficient to replace the one-time money his privatization schemes will generate.  A plausible, not entirely guaranteed assumption.  It’s just short of “magical revenue fairy” predictions.

Yes, Strickland’s budget relied on the stimulus to balance it.  But he also made over $2 billion in cuts to the general revenue fund.  He also faced a steep drop in State revenues that Ohio’s has never seen (while Kasich’s budget can, rightfully, assume revenue growth):

image

In contrast, Kasich’s budget assumes that continued economic growth will result in a 7% growth in State’s GRF revenues each year over the biennium ($18.5 billion in the FY12 and $19.9 billion by FY13).  In other words, by the second year of the biennium, Ohio’s economy would have fully recovered to the point it was before the Great Recession… just in time for the November ‘12 elections.  Thanks, Obama!

To the extent that the stimulus assistance to the States was intended to help the States carry through the recession until the economy recovered enough to bring their balance sheets back into balance, the Kasich budget assumes that the stimulus did that, except for in FY 12.  So, in reality, the stimulus worked except that it was too insufficient to avoid a painful FY12 for Ohio.

But that’s not all.  When it’s all said and done, the State is on pace to end the current biennium with roughly $500 million surplus after all FY11 bills are paid.  Factor that in, and Kasich’s deficit is down to $6.2 billion.  For those keeping score, that means that nearly a quarter of the so-called $8 billion deficit was already resolved without Kasich having to do a thing because some of it only existed due to rounding and the rest never came into being because of the economy and the Strickland surplus.

Kasich comes up with $2.2 billion, or over a third, of the remaining deficit through what Keen calls “redirection of State revenues,” which is a nice way of saying taking revenue streams away from schools and local governments and diverting it back to the State to keep for itself.  In fact, according the other charts Keen released to the media back on March 24th, these account for more of Kasich’s “deficit” reduction than net cuts to State agencies ($1.8 billion), or his Medicaid “reform” ($1.3 billion).

Is Kasich’s budget the “historic” $8 billion “no new taxes*” achievement he claims it is?  Hardly.  The reality is that buried in the details is a tacit admission that Ohio left on its own would have solved the post-stimulus revenue problem by FY13 under fairly conservative economic growth forecasts.  FY12, admittedly, was an actual challenge, but not nearly as challenging as FY09-11 were.  And Kasich’s claim that his budget required no “new taxes” carries a significant legal disclaimer:

* “No new taxes” claim is based on State taxes only and does not included any additional local or school taxes paid to replace the $2 billion in revenues the State diverted from them to balance its own budget.

Kasich uses a larger number and buries the part about the economy being a major factor in replacing the stimulus because blaming “one-time” money gives Kasich a fiscal boogeyman to deflect political blame on the cuts that he is making.  Cuts that he’d probably admit he’d be making anyways even if there wasn’t a problem in replacing the loss of the stimulus money.

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