Ohio Gov. John Kasich signed the budget bill close to midnight on June 30, but not before he vetoed 47 provisions.

This is the final budget of the governor’s two-term administration and it was a challenging budget for the legislature and the administration with an ongoing decline in state revenue during the current fiscal year.  With the initial announcement in March, state leaders proposed that the pending budget would need to be reduced by $800 million in general revenue funds over the biennium. This total grew to nearly $1 billion by mid-June. However, the legislature did not look to increase revenues through tax policy, it achieved its reduction through an across-the board-cut to state agencies of approximately 4-6 percent, along with some reimbursement modifications to Medicaid.

In the area of tax policy, the legislature once again removed the governor’s proposal to increase Ohio’s sales tax rate; removed the proposal to expand the sales tax to professional services; and eliminated the proposed increases on oil and gas severance tax, and the excise tax increase on alcohol, beer and cigarettes.

In response to a federal requirement for Ohio to change its tax policy on Medicaid managed care organizations (MCO), Ohio submitted a waiver from the Centers for Medicare and Medicaid Services (CMS) to apply a tax across all health insuring corporations (HIC) to replace the revenue from the MCO tax. CMS directed all states that were using the MCO tax that it is unlawful to tax health care organizations differently, the tax has to be levied across both Medicaid and non-medicaid entities the same.

The MCO tax provides approximately $600 million annual revenue for Ohio’s Medicaid program, along with piggyback sales tax for local governments of approximately $200 million. CMS approved Ohio’s waiver for the new HIC fee, however, local governments raised concerns over the loss of revenue. In response to those concerns, the House and Senate included a provision in the budget bill that requires the Director of Medicaid to seek a federal waiver to increase the current HIC fee for an additional $207 million to be distributed back to counties and transit authorities that would otherwise lose the revenue stream. As anticipated, the governor vetoed this provision.

Once a waiver is in place, if the administration submits a new waiver, the existing waiver no longer exists, so the administration is concerned it could jeopardize the existing $600 million of funding for Medicaid the existing HIC waiver provides.

Another controversial tax issue for businesses in Ohio is multiple municipal taxes that may be imposed depending on how many facilities or locations a business has in Ohio. It can be an administrative burden.  In an ongoing effort to make Ohio a more business friendly state, the governor proposed a centralized collection and administration of the municipal income taxes posed on businesses. In response to concerns raised by local entities, the legislature made the requirement optional for those businesses that prefer the centralized process, but it is not mandatory as originally proposed.

With more retail locations closing in Ohio due to the growth of online options, part of the declining revenues the state experienced is due to the collection of sales tax at the time of purchase. As such, the legislature include a provision that, beginning on January 1, 2018, an out-of-state seller with annual sales of at least $500,000 that either uses in-state computer software to make Ohio sales or enters into an agreement with a third party to provide networks in Ohio is required to remit a use tax.

The Ohio House has a July 6 session date scheduled for a veto override session. The Ohio House has a veto-proof majority, as well as the Ohio Senate. The Senate, however, has a tentative session scheduled on July 12. Look for additional updates as a result of the final efforts of the legislature.

This post is part of a series of blog posts that explore the Ohio Budget Update.

Ohio Budget Update- July 6, 2017

State Budget Update: Impact on Ohio’s Opioid Crisis

Ohio State Budget Update: K-12 Education and Higher Education

Ohio State Budget Update: Medicaid Budget in HB 49 (Smith) Operating Budget FY 18-19