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Perhaps the most highly anticipated race of the 2009 election cycle on the national scene was the race for Governor of New Jersey.  The seat is currently held by Democrat Jon Corzine, who previously served as one New Jersey’s United States Senators.  Prior to his political career, Corzine also served as the President and CEO of Goldman Sachs.  He was challenged by United States Attorney Christopher Christie.  Christie was able to successfully use Corzine’s past dealings with Goldman Sachs to attack his economic credentials.  This race received significant outside attention, including campaign appearances by President Obama and RNC Chair Michael Steele.  In the end, Chris Christie came out on top, unseating Corzine by a 49% to 45% final margin, with Independent candidate Chris Daggett grabbing the final 6%.

The Virginia Governor’s race was not expected to be very competitive, as Republican candidate Bob McConnell had shown a solid lead in polls leading up to election day.  McDonnell, currently Virginia’s Attorney General, faced off against Democrat State Senator Creigh Deeds.  This race was a rematch of sorts, as McDonnell beat Deeds in 2005 for Attorney General by a mere 400 votes.  The Governor’s Mansion has been occupied since 2002 by Democrats Mark Warner and Tim Kaine, whose term ends this year.  However, despite the recent history of Democratic Governors as well as President Obama winning the state’s 13 electoral votes in 2008, the Republican candidate McConnell was able to win back the seat by a tally of 59% to 41%.

The House approved HB 318 Wednesday, a bill enacting Governor Strickland’s proposal to delay the final phase of tax cuts, set to take place this year.  The bill passed by a vote of 55-44, including all Democratic representatives and Reps. Matt Dolan (R-Novelty) and Ross McGregor (R-Springfield).  The bill will move to the Senate, where legislative leaders have concerns about whether this is the best course of action to fill the expected $850 million budget gap.  The Senate has scheduled its first hearing on the measure for this Wednesday at 9:30am.

Much of the debate on the floor of the House was over whether this bill raises taxes.  House Republicans argued that since Ohioans will pay more than they might have expected to pay in taxes this year, it is a tax increase.  House Democrats disagreed, claiming that since Ohioans will pay the same rate of taxes in 2009 as they paid in 2008, this bill would not result in a tax increase.  House Republicans also offered a number of amendments aimed at decreasing the size of state government by reducing the number of state agencies from 24 to 11, and reducing the number of state employees by approximately 8,000.  However, House Democrats argued that these proposals are not realistic, because they would require considerable funds to begin, and any savings would not be achieved during this biennium.  They also argued that these cuts would be detrimental to the state’s ability to provide services to its citizens.

Former Speaker of the Ohio House and current State Senator Jon Husted’s voter registration was cancelled by the Montgomery County Board of Elections at the direction of Secretary of State Jennifer Brunner. Questions about Mr. Husted’s residency have been raised in the past, and the Montgomery County Board of Elections were split in their ruling on the most recent challenge to his residency, 2-2. It has been alleged that Mr. Husted resides in the Columbus area, despite representing Ohio’s 6th Senate District, which consists of Dayton suburbs.

When a county Board of Elections can not settle a residency challenge, the tie-breaking vote falls to the Ohio Secretary of State. In this case, Secretary Brunner ruled that Mr. Husted does not reside at the address at which he is registered to vote, in Kettering. Mr. Husted has admitted that his wife owns a house in the Columbus area and that he stays there with his family “when he is in Franklin County on public business.” However, he maintains that his primary residence is in Kettering.

In response to the Secretary of State’s finding, Mr. Husted said he would immediately appeal the decision to the court system, saying, “During this dispute Jennifer Brunner failed to follow the law and exceeded her authority [...] Since I could not get a fair resolution from Jennifer Brunner, I will file a legal action and ask for the courts to decide the matter so that I can exercise my right to vote in the November elections.”

Rep. Jay Goyal (D-Mansfield), August 2009 from Public Policy Advocates on Vimeo.

Ohio Not Alone In Budget Difficulties

The National Conference of State Legislatures (NCSL) met in Philadelphia last week for their annual conference where several representatives of the Ohio Legislature attended the conference.  The NCSL released its annual State Budget Update report, detailing each state’s current fiscal situation, including deficit or surplus projections.  Corina Eckl, director of the fiscal program for NCSL, told conference attendees that collecting information from the states has been more difficult than in years’ past, because eight states, including Ohio, missed their July 1st deadline for completing budgets.

According to the report, thirty-five states estimate they will have a 10 percent or higher budget shortfall in their 2010 budgets and twelve of those states expect a gap of more than 20 percent.  For fiscal year 2009, states have dealt with $113 billion in budget shortfalls with another $142.6 million in expected gaps for FY 2010.  While Ohio leaders have refused to enact any tax increases to fill the budget gaps, other states opted for a tax increase.  Of the $113 billion in budget corrections, so far $24 billion has been replaced by tax increases.

Governor Strickland Joins Midwest Governors In Effort To Get Rail Funding

Governor Strickland announced recently he has signed on to a memo with the Governors of six other midwest states to apply for some of the $8 billion set aside by the federal government for rail funding.  Strickland hopes to connect Cleveland, Columbus, Dayton, and Cincinnati as part of what the administration described as “President Barack Obama’s nationally-prioritized Chicago Hub Network,” which also connects Toledo, Louisville, Indianapolis and Chicago to western points beyond. 

Ohio’s Transportation Budget, House Bill 2, included provisions for the planning of a conventional-speed passenger train connecting the “Tri C Corridor,” with hopes of converting it to high-speed rail in the future.  This system will be the starting point for connecting to other states and major metropolitan areas in all directions.  The Governor said he is looking forward to working with the other governors and the Obama administration to make the midwest a leader in high speed rail, creating jobs and opportunities for economic development for the future.

Auditor Taylor Takes Issue with Strickland Veto

Auditor of State Mary Taylor sent a letter to Governor Strickland this week, criticizing him for one of the 61 line-item vetoes he made to House Bill 1, the biennium budget bill.  The issue of concern was Governor Strickland’s veto of a provision added by Senate Republicans which would grant the state auditor more authority in recovering costs from public audits.

When the Auditor’s office performs a public audit, they have traditionally paid for that service through a line item within the budget, capped at a certain amount.  In the Governor’s introduced budget, this was approximately $460,000 per year.  However, the new language offered by the Senate required the Office of Budget and Management to reimburse the Auditor’s Office from the General Revenue Fund for whatever costs they incurred.  Governor Strickland vetoed the language on the grounds that it was too broad.  He stated in his veto message that this provision would allow the Auditor’s office unchecked authority to spend GRF money for office operations without any oversight.

Auditor Taylor felt that the Governor had overstepped his bounds in an attempt to control the functions of her office.  In her letter, Mrs. Taylor said, “With this veto and others, the Governor infringes on the professional independence and authority to hold state government accountable that Ohio law grants exclusively to the Auditor of State.”  Governor Strickland’s office responded, saying that the current system works, and the new language could have resulted in additional money being spent on audits at a time when all state agencies need to tighten their belts.

Piketon Nuclear Power Plant Plans Cancelled

The U.S. Department of Energy (DOE) rejected a loan application on funding for a “next generation” nuclear enrichment facility in Piketon Tuesday, but announced new investments to help clean up the contaminated Cold War-era weapons manufacturing site.  The application for a loan guarantee to help finance the American Centrifuge Plant did not meet the agency’s statutory and regulatory requirements to qualify for funding, according to an agency spokesman.  However, the DOE encouraged USEC, the company hoping to build the plant, to resubmit their plans in 12 to 18 months.  The DOE also offered $45 million in research and development grants.

Officials for USEC released a statement calling the rejection a broken campaign promise on behalf of President Obama.  CEO John Welch said, “President Obama promised to support the loan guarantee for the American Centrifuge Plant while he campaigned in Ohio. We are disappointed that campaign commitment has not been met.”  USEC also claimed that as many as 600 jobs would be lost as a result of the loan guarantee failure.  

However, DOE officials have responded by saying that the $150-200 million investment being made to clean up the former Portsmouth Gaseous Diffusion Plant would result in the creation of more than 800 jobs, offsetting those losses.  Meanwhile, the DOE is still processing an application from French company to build a similar nuclear plant on the site, pending approval of the company by the Nuclear Regulatory Commission.

State Medicaid Director Corlett Will Step Down

State Medicaid Director John Corlett announced his plans to step down from his post in late August.  He intends to move back to Cleveland to pursue other interests.  Director Corlett said that he was proud of some of the work that he was able to accomplish during his tenure, but admitted that it was difficult to work on some of the reforms due given the state’s current fiscal situation.

House And Senate Announce Fall Session Schedule

House Speaker Armond Budish and Senate President Bill Harris released the General Assembly’s session schedule for the rest of 2009 this week.  The schedule can be found here.  Legislators expect to hold session during much of September and October, with possible session days scheduled for November and December.

Budget Message
 
Article II, Section 16 of the Ohio Constitution authorizes the Governor to veto any item or items in any bill making an appropriation of money. I have boxed and initialed text in Amended Substitute House Bill 1 that I have disapproved. All remaining text in the bill is approved. The reasons for my vetoes are set out below.

Introduction
 
In February, I introduced a balanced budget in one of the most economically challenging times in our nation’s history. As the budget was considered by the Ohio House, Senate and subsequent Conference Committee, the state and nation’s financial situation deteriorated.

A collapse of international financial markets, combined with the ongoing contraction in the housing market and a decline in the automotive industry, led to a sharp decrease in tax revenues and an additional $3.2 billion budget gap.

General Revenue Fund tax receipts declined by $2.3 billion in fiscal year 2009, or 12% as compared to the previous fiscal year – the worst decline in state revenue in at least 50 years. General revenue taxes available to the State of Ohio will be lower in this biennium than they were seven years earlier, impacting our ability to maintain the services and operations of state government that Ohioans have come to expect.

Read more.

Last Friday, July 17, Governor Ted Strickland signed into law the biennial operating budget, House Bill 1, after vetoing 61 items.  Among the provisions vetoed by the Governor were limitations on executive authority and a prohibition on the use of prison labor at the Governor’s residence.  However, the most controversial veto was on a provision regarding local tax revenues.

Beginning with the 2005 budget, local governments and school districts would have suffered losses due to the repeal of the tangible personal property tax.  House Bill 1, as passed, included a provision to hold these local governments harmless from such losses going forward.  The provision would direct dollars from the Commercial Activities Tax to schools and local governments to make up for the loss in reimbursements from the tangible personal property tax.  In vetoing these provisions, Governor Strickland stressed that schools would still be held harmless until FY 2013, while local governments would be covered through FY 2011.

“This budget process has been long and difficult. However, we have come to an agreement on those things that matter most to Ohio families and businesses who are struggling through the worst economic crisis since the Great Depression,” Strickland said.

The Governor’s complete veto message can be found here, while the changes to legislative language can be found in boxed text, Part 1 and Part 2.

Budget Highlights

The Strickland administration announced that the changes made to the operating budget would allow for an additional 100,000 Ohioans to receive access to healthcare.  Most of that increase is due to a provision which changes the open enrollment program.  This program requires health insurance providers to offer individual health plans during a certain time period, regardless of their current health status.  House Bill 1 reduces the rates which insurers can charge during open enrollment by about 25% by 2012.  This change is expected to allow some 52,000 additional people to enroll.

Senate Republicans and industry groups were strongly opposed to most of these changes, but the Conference Committee included them in its report.

Conference Committee Report Shows Partisan Trades Were Key To Compromise

The Conference Committee on House Bill 1 met for nearly 6 weeks to hash out a compromise budget which could be passed by both chambers, while reducing spending by nearly $2.3 billion.  All of these changes were contained in an omnibus amendment passed by the committee, nearly 1,500 pages in length.  Within that amendment were changes to almost every major government program and service.

The changes illustrate that the conference committee reached their compromise by exchanging certain related budget provisions to acquire enough bipartisan support to pass the final report.  For example, Democrats were granted their wishes on collective bargaining for home-care workers, while Republicans won on labor issues related to courts, community corrections facilities, and the State House.  The Governor issued an executive order early in his term to allow these home health care employees to join unions, despite objections from legislative Republicans.  This order was made permanent through statutory language in HB 1.

In the end, many compromises of this type were made in order to strike a budget deal.  Despite all of the give-and-take, House Bill 1 passed both chambers by very narrow margins.

Budget Cuts

Despite the projected revenues from the institution of VLT’s at Ohio’s horse racing tracks, the state budget needed approximately $2.3 billion in additional cuts to be balanced.  The chart below outlines some of the difficult funding cuts made.

Office of Budget and Management Director Pari Sabety and Tax Commissioner Rich Levin testified before the Senate Finance committee Thursday regarding the recent announcement that the state’s tax receipts for the month of April were almost $600 million short of estimates.  The Senators tried to ascertain how it was possible that receipts were so far below estimates. 

Commissioner Levin explained that since the Ohio Income Tax was established in 1971, the total dollars received by the state has increased every year except 1986, when revenues decreased by less than 4%.  Commissioner Levin and Director Sabety went on to explain that they had projected historic shortfalls, and had predicted a decrease of 9.4% from last year, almost three times greater than the worst year on record, 1986.  However, even these very pessimistic projections didn’t come close to the actual receipts, which fell by over 15%.