Republicans Push Budget Bill

Gongwer News Service - May 31, 2005

Republicans Push Budget Bill Out of Committee After Making Numerous Changes to Tax Provisions, Other Areas

Gongwer News Service

The $51.2 billion biennium budget bill emerged from committee late Tuesday with most major provisions relatively intact, including the biggest overhaul of the state’s tax code in decades. Among the more notable changes included in a roughly 600-page omnibus amendment are an expanded exemption against the new “commercial activity tax” for businesses and a rewrite of the nursing home Medicaid reimbursement formula starting in fiscal year 2008.

The party-line report by the Senate Finance & Financial Institutions Committee sets up a Wednesday floor vote on the bill (HB66). Sen.President Bill Harris (R-Ashland) said he has enough support in his caucus to pass the bill. Senate Democrats are expected to oppose it en masse.

The bill will then head to House-Senate conference committee deliberations, with revenue updates tentatively set for next week. Medicaid and education-related issues are at the center of several matters of difference between the two chambers.

For their part, minority Democrats let their extensive differences with the bill be known through about 20 amendments, all but two of which were tabled by Republicans who control the chamber 22-11 and the committee 9-4.

In offering the Senate Democrats’ alternative budget proposal in the form of an
omnibus amendment, ranking minority member Sen. Tom Roberts (D-Dayton) said the GOP package fell short in terms of fair taxation, support for local governments and higher education, aid to the poor, and several other areas.

While the minority’s plan protects funding for local governments and human services for the poor, and enhances the economy with prudent tax policies, he said, the GOP bill scares constituents in part by the unknown effects of the new business tax code and gives short shrift to needy citizens at the same time it provides tax breaks for the rich. “This budget will hurt more people than it will help,” he said.

Sen. Dan Brady (D-Cleveland) agreed, calling the package “the worst budget I’ve seen in my lifetime here in Ohio.”

“I don’t think this bill reflects the diversity of this state,” Sen. Brady said, predicting there would be extensive problems with schools, local governments and tax collections as a result. “They are problems we have created for the future of this state.”

Finance Chairman John Carey (R-Wellston) defended the measure, saying such gloom-and-doom predictions reminded him of the debate 10 years ago over welfare reform, which has been a success.

Sen. Carey acknowledged there are risks inherent in implementing CAT as well, but given the state of Ohio’s economy, he said, “The reality is, we have to do something different.”

“The bill does present a bold vision,” Sen. Carey added. “But the risks are worth taking for Ohio’s future.”

As did the House the month before, the Senate thus far has embraced the gross receipts-based CAT as a viable alternative to the corporate franchise tax, which like the tangible personal property tax is slated for a phase-out in the budget bill. The bill also sets a five-year reduction schedule for the personal income tax, which at the end of the cycle would drop by 21% across the board.

The measure provides minor increases for K-12 and higher education and entails the most extensive Medicaid reforms of any budget bill in recent memory. The bill provides that costs in Medicaid, a $10 billion program that has seen double-digit increases in recent years, would rise only moderately over the next two years. The goal, if reached, would be accomplished through reimbursement rate freezes and the reduction or elimination of state funding for certain programs.

Among the more controversial changes made through the omnibus amendment was language restructuring Bureau of Workers’ Compensation investment and governance policies, which have come under question in light of a growing scandal over a collectible coin fund. The changes include certain disclosure requirements for BWC Oversight Commission members.

Another change in the omnibus amendment removes the longstanding tax exemption for gold bullion and collectible coins, the announcement of which prompted chuckles among those in attendance – most if not all who are familiar with the ongoing, so-called “Coingate” scandal – during the committee’s morning hearing. The change, which Sen. Harris said has nothing to do with the controversy over the BWC coin investments, is expected to save the state about $3 million a year in previously foregone revenue. Officials could not say how or if the removal of the tax exemption would affect the state’s plans to divest the multi-million dollar BWC coin fund.

Democrats tried unsuccessfully to add more BWC changes to the bill, including restrictions on campaign contributions by investment managers and more authority for the inspector general’s office to pursue investigations. (See separate story)

After Republicans first tabled the proposal, the panel unanimously adopted a Democratic amendment offered by Sen. Roberts to require regular audits of BWC by the state auditor.

Sen. Charlie Wilson (D-St. Clairsville) also won unanimous support for an amendment that strips the bakery business fee hike from the bill.

In an amendment sponsored by Sen. Tom Niehaus (R-New Richmond), the Senate added about $22 million in federal Temporary Assistance to Needy Families funds to raise reimbursement rates for childcare and a new Early Learning Initiative, a program designed to replace the failed Head Start Plus concept. Sen. Niehaus said the changes and additional money resulting from raising the childcare provider reimbursements from the 60th to the 65th percentile of market rates would boost provider participation and help make the program successful.

Sen. Wilson endorsed the change, saying it would help providers serve an additional 10,000 children in FY 2006 and 12,000 in FY 2007.

Another amendment separate from the omnibus, offered successfully by Sen. Ron Amstutz (R-Wooster), clarifies the CAT review criteria on which the state would make future adjustments to the tax rate depending on the flow of revenue. Along with changes in the economy, savings from Medicaid program reforms would be considered in making the adjustments, he said.

The omnibus amendment increased from $40,000 to $200,000 the amount of sales a business can make before being subjected to the CAT, and also raises the annual minimum fee from $100 to $175. Sen. Amstutz said the two changes are roughly revenue-neutral, and that they would ease some administrative burdens for small businesses.

Separately, the research and advocacy group Policy Matters Ohio reported Tuesday on an apparent flaw in the CAT rate mechanism added previously by the Senate. Research Director Zach Schiller identified some potential problems related to CAT adjustment mechanisms, including a permanent revenue cap starting in 2010, after the new tax is fully phased in.

Mr. Schiller said the cap language would result in the decline of the CAT intake in relation to the economy and share of state revenue over time. Senate officials said the provision is under review.

Nursing home interests, which have seen some favorable House amendments either stripped or significantly changed by the Senate to more closely match Governor Bob Taft’s more restrictive funding proposals, took another hit with a provision affecting the permanent law reimbursement formula. The change, if it clears conference committee, represents a significant policy shift for the nursing home industry.

Responding to the administration’s concerns that a new reimbursement formula added by the House would result in an $800 million “balloon payment” after the next biennium, the Senate amended the bill to implement a new statutory formula beginning in FY 2008 that “is based on a price model as opposed to a cost model and includes quality incentive payments,” according to a GOP synopsis. That means the administration, rather than mostly funding the facilities’ costs as submitted, would set prices for certain services and then reimburse the facilities.

Another nursing home-related change made through the omnibus “provides that a (nursing facility’s) reimbursement rate for FY 2006 and FY 2007 may be adjusted to reflect a change in the NF’s capital costs due to certain change of provider agreements or certain reviewable activities for which a (Certificate Of Need) application is filed.”

Nursing home interests are expected to vigorously oppose the changes along with a “tiered” approach to reimbursements previously amended into the bill.

While there are no major surprises in the omnibus amendment, as always, there are numerous significant policy adjustments affecting a variety of Ohio Revised Code sections. A few of the other notable examples:

–the imposition of new record-keeping and auditing requirements for contractors doing business with government entities.

–an increase in the vender discount fee for sales tax collections from .75% to .9%, which retailers project will save about $11 million a year for businesses across Ohio that file the taxes on a timely fashion. The tax-related changes are among a total of 36 amendments in the omnibus that affect tax and development sections of the ORC.

–language providing for the restoration of local school boards’ management rights in districts declared to be in “Academic Distress” and under the supervision of a state-appointed commission.

–several changes affecting charter, or community, schools, including Internet-based startups.

–the maintenance of current law limiting state-supported early childhood programs to school districts and educational service centers.

–several additional education earmarks, including $1.5 million for Disadvantaged Pupil Impact Aid to support the Cleveland voucher program in FY 2006, and $1.5 million in FY 2007 for school bus purchases.

–a revamped school funding formula

–the addition of six new members to the Ohio State University Board of Trustees.

–revised university enrollment cap language that bases the cap on the number of full-time students as opposed to the full-time equivalent (FTE).

–placement of the tuition rate cap in temporary law instead of permanent law.

–a requirement that the Board of Regents, in adopting rules for the Ohio College Grant, include provisions giving priority to low-income students who meet certain academic performance standards in primary and secondary school.

–numerous adjustments to the Medicaid managed care pilot program for the Aged, Blind and Disabled service recipients.

–language reflecting a compromise on administrative proposals to eliminate the intermediate care facilities for the mentally retarded (ICF/MR) Medicaid funding stream and replace it with an individual-based waiver. The provision creates a phased-in pilot program for the new waivers.

–authority for the Department of Job and Family Services to limit the scope of optional Medicaid dental and vision services in order to stay within reduced appropriations for the coverage.

–a narrowing of the CAT exclusion for insurance companies and their subsidiaries.

–creation of a Telecommunications Personal Property Tax Study Committee to review differing tax rates of the entities.

–a requirement for the state tax commissioner to compile a list of licensed cigarette distributors.

–alignment of the Third Frontier development program prohibition against financing embryonic stem cell research with the policies of President Bush.

–the establishment of a consumer call center funded jointly by the Public Utilities Commission of Ohio and the Ohio Consumers’ Counsel. Both entities currently operate separate call centers.

–adjustments to House-added provisions affecting the water quality certification program within the Ohio Environmental Protection Agency.

–authority for the ODJFS director to “establish, change and abolish positions of employment that are classified civil service” and make similar changes, including demotions, for exempt employees in classified civil service.

Sen. Ray Miller (D-Columbus) was critical of the latter amendment, which he described as an attempt to “subvert” collective bargaining laws, the OSU trustee board expansion and other omnibus amendment provisions. “What bothersome about these amendments is there are things that were never discussed” in committee, he said.

Among the Democratic amendments tabled by the GOP members were proposals to: create a Legislative Audit Commission; require a Webcast of each legislative committee meeting; increase funding for human services programs; eliminate the Medicaid estate recovery provision in the bill; restore the Community Alternative Finding System (CAFS) for
Medicaid; strip a provision allowing schools to privatize busing services; restore the Central State University support line item to FY 2004 levels; allow the Commission on Minority Health to grant employee pay raises, and; restrict and eliminate school employee “reduction in force” language that gives school boards more leeway in cutting employment costs.

Sen. Roberts, whose amendment would have eliminated the RIF provision, termed it “egregious” and added: “This shouldn’t be seen as a first step to trim the fat.”

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