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Week in Review: Feb. 7, 2021

Written on Feb 5, 2021

Provided by The Hannah News Service

FY22-23 BUDGET

House hearings on the governor's proposed FY22-23 budget began Thursday in the House Finance Committee with testimony from invited witnesses including Office of Budget and Management Executive Director Kim Murnieks, Legislative Service Commission Executive Director Wendy Zhan and Ohio Tax Commissioner Jeff McClain. This followed Monday's unveiling of the proposed budget by Gov. Mike DeWine and Lt. Gov. Jon Husted. The budget, which sees a 2 percent increase in General Revenue Fund spending in FY22 over FY21 and another 3.4 percent increase in FY23, looks very different from what was anticipated a year ago when the COVID-19 pandemic closed down the state and the economy. All this without having to touch the state's Rainy Day Fund. That is largely due, according to DeWine, to the influx of federal funds into the state in addition to steps the state took early on which included freezing and cutting spending and then refinancing the state's debt as well as the unintended consequences of the pandemic's shifting consumers' buying habits from purchasing services -- which are not subject to the state sales tax -- to purchasing goods, which are resulting in an increase in the state's sales tax revenue.

Gov. DeWine proposed a $1 billion COVID recovery initiative as part of his proposed FY22-23 budget. He explained that the proposal, which uses one-time funds only, seeks investments of $460 million to help small businesses, $250 million for expansion of broadband access and $70 million to strengthen the state workforce as part of a goal for Ohio to emerge from the pandemic "even stronger." The aid to small businesses includes grants totaling $200 million for bars and restaurants, $150 million in general relief, $50 million for the lodging industry, $40 million for indoor entertainment venues and $20 million for new businesses that were often unable to receive previous funding.

The three state agencies that administer DeWine's signature water quality initiative would be allocated $240 million over the next biennium under the executive budget proposal. That's up from the $180 million transferred to the H2Ohio program in FY20-21, Murnieks said. Under the administration's FY22-23 budget proposal, the Ohio Department of Agriculture would receive nearly $100 million over the biennium, while the Ohio Environmental Protection Agency would get $92 million and the Ohio Department of Natural Resources would be allocated $50 million.

The Ohio Department of Rehabilitation and Correction looks to continue reform of the state parole system in the next biennium as it works to reduce officer caseloads from 67:1 to 50:1 with a $12 million infusion in both fiscal years. The agency's biggest percentage change, however, will slash $69.4 million from coronavirus relief in FY22 and zero the fund in FY23. Gov. Mike DeWine's proposed budget would provide DRC $2 billion from all funds in FY22 for a 0.4% increase over FY21 and $2.1 billion in 2023 for a 2.7% increase over the first year.

Secretary of State Frank LaRose's office is looking to improve its business service division and reduce the time, effort and cost of starting a business through its FY22-23 budget. According to the Blue Book for the secretary of state, the office is seeking a 21.1% increase in General Revenue Fund funding for FY22 from FY21, while the FY23 budget will not have any increase from FY22. Both fiscal years call for a $13.6 million budget, up from the $11.3 million budget in FY20. The all-funds budget would be a 44.6% from FY21, after the state received federal funds to help conduct the 2020 presidential election. The all-funds budget is $37.1 million for FY22 and $36.2 million for FY23.

During the first hearing in the House Finance Committee on the governor's proposed budget on Thursday, Office of Budget and Management (OBM) Director Kim Murnieks said it shouldn't be a surprise that the OBM FY22-23 revenue forecast is lower than that of the Legislative Service Commission: "It's ... pretty normal for OBM's forecast to be more conservative than LSC's forecast because we have to implement the budget after it's passed. We have to live with it for two years, and live within it for two years. So it really doesn't serve us well to be overly optimistic," Murnieks said.

LSC Director Wendy Zhan said her agency's higher tax revenue forecasts compared to OBM's -- $487.8 million more in FY22 and $390.3 million in FY23 -- are driven substantially by LSC's more optimistic view of how much tax revenue will grow in FY21. LSC predicts 9.6% growth from FY20 to FY21, while OBM predicts 7.4%.

Tax Commissioner Jeff McClain Thursday told the House Finance Committee that the executive budget proposal has "no major policy items" for the Ohio Department of Taxation, but two dozen "technical or clarifying items." Among those is elimination of the requirement for those taking advantage of the state's business income deduction to report their occupations using North American Industry Classification System codes. That requirement was part of a tax policy omnibus passed in 2019 that repealed the short-living prohibition on claiming the BID for lobbyists and lawyers.

Addressing the biennial Tax Expenditure Report -- a review of the effects of various tax credits, exemptions and deductions -- McClain said the estimated foregone revenue will total $9.2 billion FY22, compared to $8.7 billion five years ago in FY18.

At the Common Sense Initiative's Small Business Advisory Council Thursday, Lt. Gov. Jon Husted and Development Services Agency Director Lydia Mihalik offered details on the executive budget proposal's support for small businesses. Husted said it represents a "responsible, balanced budget that does not create a fiscal cliff." This will be done through extensive use of funds provided by the federal government for a one-time effort focused on helping small businesses and communities during the pandemic.

CORONAVIRUS

On Thursday, Gov. DeWine said his administration will be making the vaccine available to those 65 and older starting the week of Feb. 8, but after that, he will not be expanding the eligibility. With nearly 2.5 million Ohioans in the 65 and older age range, he said it will take time to get that group vaccinated. Asked when he would estimate the rest of the population would be eligible, DeWine refused to speculate, saying it all depends on the availability of vaccines.

ECONOMIC DEVELOPMENT

Greater Ohio Policy Center's highest priority for the FY22-23 operating budget is securing a policy change dedicating millions of dollars for the redevelopment of brownfields, GOPC Strategic Engagement Director Jason Warner said.

TAXATION

The nearly $8 billion issued to employers by the Ohio Bureau of Workers' Compensation are almost certainly subject to the Commercial Activity Tax (CAT) and income tax, Ohio Department of Taxation (ODT) officials told the Senate Ways and Means Committee on Tuesday. Responding to a question from Sen. Kristina Roegner (R-Hudson) during his proponent testimony on federal tax conformity bill SB18 (Roegner-Schaffer), ODT Legislative Director Tim Lynch said the agency currently views the dividends as taxable under the CAT.

UNEMPLOYMENT COMPENSATION

For the week ending Jan. 30, the Ohio Department of Job and Family Services reported 47,786 initial unemployment claims to the U.S. Department of Labor. That is slightly fewer than the number of new jobless claims reported last week, which was 49,974. Last week's total was the highest number of new jobless claims since May 2020.

WORKERS' COMPENSATION

The Ohio Bureau of Workers' Compensation's (BWC) new four-year contract with managed care organizations (MCOs) includes a "significant change in how we pay the MCOs, from what the historical practice has been," BWC Interim Administrator/CEO John Logue said Friday at the BWC Board of Directors monthly meeting. "We are no longer using a pool of money that will be split among the MCOs on a pro rata basis based on their activity. The new methodology introduces a variable component determined by the number of active claims an MCO is managing, and that number is adjusted monthly."