Kasich's New Budget Contains Changes for Local Government

The Kasich administration is proposing changes to local state aid and the collection of local business taxes. It has some mayors worried about what this will mean for their cities’ bottom lines.

TONY GANZER: So some of these changes involve what’s called the local government fund. Remind us again what that is.

NICK CASTELE: So this is a pool of money the state distributes to local communities. It ends up in the budgets of cities, townships, villages and counties. And it’s been a battleground between local governments and the state for several years. Gov. John Kasich’s first budget cut back on the local government fund from $694 million in 2011 to $348 million in 2013. Next year, it’s going to be about $380 million, that’s what’s proposed. And now, the changes that we’re talking about here, they won’t affect the entire local government fund, but they will affect a portion of it.

GANZER: Okay, the Kasich administration is saying they want to give out some of that money based on need. But how do they define that?

CASTELE: So the state’s proposing setting aside a portion of the local government fund, and they’re defining this need as a community’s capacity to raise revenue. So the idea is, the less capacity a community has to raise revenue, the more money it would get from this portion of the local government fund. So how does the state define capacity? They’re going to have different calculations for different government entities. Here’s budget director Timothy Keen, he’s speaking to the Ohio House Finance Committee about this:

TIMOTHY KEEN: “If you represent entities in areas that have been economically challenged, and that produces a reduced ability to raise revenue through your local tax base, you should be for this proposal.”

GANZER: And is that the case? Are mayors in hard hit cities in favor of this?

CASTELE: Well, one mayor in particular sounds pretty skeptical about this, and that’s Cleveland Mayor Frank Jackson. He was already unhappy with the cut to the local government over the past few years. He doesn’t sound thrilled by this new idea either. Here’s what he told our Rick Jackson in an interview last week:

MAYOR FRANK JACKSON: “We’ve been cut in half as to what we receive from before. Now they’re saying need-based, which means what? Does it mean because we’re structurally balanced now and we’re able to enhance our services and we passed the income tax, does it mean now we don’t need it? What does all of that mean?”

CASTELE: Now I asked the budget director Keen if he believes that urban areas will lose out. Keen says he can’t definitively say that. What we’ll really need to see is a list of communities and how each fares with this new proposal.

GANZER: So what portion of the local government are we talking about here?

CASTELE: The plan is for 10 percent of the local government fund to be set aside for this distribution next year, and to bring it up to 20 percent by 2020.

GANZER: There’s also a different proposal on the table that would change how business taxes are collected?

CASTELE: Right, so there are communities around the state that tax the net profits of business located there. Municipalities can collect these taxes locally, or they can be collected at the state level. This proposal that Gov. John Kasich is putting forward would have all of those business taxes collected by the state and then distributed to the locals. Here’s Gov. Kasich talking about the proposal at his budget briefing:

GOV. JOHN KASICH: “I mean it’s really a very difficult problem for small businesses. I know that the local governments aren’t going to be thrilled with this because they have their own staff and they think we wouldn’t give them their money back. Well they’d get their money back, and this is the more efficient way to help businesses.”

CASTELE: And sure enough, local governments are not happy about this. Here’s Kent Scarrett, he’s the executive director of the Ohio Municipal League, which represents cities:

KENT SCARRETT: “Of course our members are extremely concerned and opposed to the move of the state interfering with the collection and the management of their revenues.”

CASTELE: Now they’re concerned about losing local control and oversight of these taxes, especially when it comes time for businesses to come back and ask for tax refunds.

GANZER: And where do these proposals stand right now?

CASTELE: It’s still early. The budget is beginning to go through the legislature, there are hearings happening right now, so there certainly could be changes before it’s finally approved.