Glass City Jungle

This in via e-mail from the office of Governor Ted Strickland:

Ohio Education Budget Shortfall and the Consequences of Inaction

Ohio GOP Senators Claim they can Delay Resolving Education Funding Shortfall Until Next Year.

Senate Republicans don’t see Jan. 1 as such a key date…Sen. Mark Wagoner, a Toledo-area Republican, said the deadline set by Democrat is about political cover not budgetary need. For Strickland, there are political consequences to consider. He is up for re-election next year. “After Jan. 1 there is no question that it would be a tax increase,” he said. “I think that presents a political problem for the governor and other Democrats and that’s what is driving this.”

(Cleveland Plain Dealer, “Budget battle over income tax delays draws educators,” December 12, 2009)

“The world does not end Dec. 31 if we don’t do anything,” said Senate Finance Committee Chairman John A. Carey Jr., R-Wellston… If the issue is not resolved by the end of the year, Carey said, cuts would not have to be made immediately, nor would they have to be made to education. (Columbus Dispatch, “Governor: Education nightmare draws near,” December 12, 2009)

But the legislative option to freeze income tax rates at 2008 level is no longer available after December 31.

The legislature has until Dec. 31 to finalize income tax rates for the year. Once the year is over, the legislature can’t go back and change the rates. Doing so would violate the state constitution’s prohibition on enacting retroactive laws. (Article II, Section 2

That means the only realistic revenue option would be a tax increase. Sen. Carey agrees: “The only thing magical about Jan. 1 is, after that, the option of the income-tax delay goes away and it would become a tax increase.” (Columbus Dispatch, “Governor: Education nightmare draws near,” December 12, 2009)

But if Ohio’s Republican Senate Caucus can’t find five Senators willing to postpone a tax cut to protect Ohio’s schools, how will they find five Senators willing to increase taxes to protect Ohio’s schools?

Without legislative action, Ohio schools will lose budgeted funding by default, starting in January.

Because the $851 million budget hole is in the Lottery Profits Education Fund, leaving the shortfall unresolved will result in an automatic funding reduction for Ohio’s K-12 schools. According to the Ohio Department of Education, that size of a cut to education would put at risk the state’s ability to draw down federal funds. That means absent a federal waiver every school district – and Ohio’s public colleges and universities – would face a total shortfall of at least $2.3 billion. If federal Title I and IDEA resources are also lost, the reduction of assumed funding will exceed $5 billion.

If the budget impasse is not resolved by December 31, education cuts would commence in January because delaying reductions in state aid to later in the year would impair the ability of school districts and colleges to manage the impact responsibly.

Ohio will fail to meet Race to the Top eligibility requirements if the shortfall is not resolved.

Ohio is positioned to be highly competitive for the U.S. Department of Education’s Race to the Top competitive grant because Ohio’s recently-enacted education reform package is in line with the Obama Administration’s four stated reform principles. But legislative inaction will result in Ohio failing to meet eligibility requirements for the first round of funding, for which applications are due January 19.

To be eligible for Race to the Top funding, Ohio’s application must show the state is in compliance with State Fiscal Stabilization Fund (SFSF) requirements. Because an unresolved $851 million education budget shortfall puts the state’s compliance with federal funding requirements at risk, Ohio fails to meet the first of two listed eligibility requirements for Race to the Top:

The State’s applications for funding under Phase 1 and Phase 2 of the State Fiscal Stabilization Fund program must be approved by the (US) Department prior to the State being awarded a Race to the Top grant. (Race to the Top Program Executive Summary, US Department of Education, November 2009)

Senate inaction places Ohio’s bond rating at risk.

Moody’s Investors Service recently downgraded the State of Illinois due to concerns “over the state’s ability to address its fiscal problems with little time remaining before the fiscal year ends.” According to Moody’s analyst Edward Hampton, “The planned deferral of legislative action to address fiscal 2010 imbalances until at least February or March leaves little time in the fiscal year to take actions to materially reverse the trend of financial weakening.” (The Bond Buyer, “Moody’s Lowers Illinois,” December 9, 2009)

Standard & Poor’s Ratings Services also recently downgraded the State of Illinois “because of the state’s “questionable” willingness to implement difficult and politically unpopular measures to restore a budget balance. “There’s been very limited action on addressing the shortfall,” said Robin Prunty, an S&P analyst.” (Reuters, “Illinois’ bond rating takes hit from S&P,” December 10, 2009)