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Born on the 4th of July: Ohio's Biennial Budget Overview

Ohio statehouse government affairs week in review January 2023

It went right down to the wire, but the General Assembly passed an on-time and balanced Sub HB 33, the biennial operating budget for the state of Ohio, on June 30th - the last day of fiscal year 23. The House voted 67-30 in favor of the conference report; the Senate voted 25-6 in favor. The final version of the bill is 6,196 pages long. It was delivered to the Governor’s office on Sunday July 2, and he signed it into law in the wee hours of July 4. He line-item vetoed 44 provisions before signing the measure into law. The bill can be viewed here. The veto message can be viewed here. To ensure the state of Ohio did not have a lapse in appropriation authority, the General Assembly also adopted a three-day interim budget as part of HB 31, the Bureau of Workers’ Compensation biennial operating budget. Appropriations/Spending The General Revenue Fund (GRF) portion of the state’s operating budget appropriates $41.4 billion in FY 24 and $44.7 billion in FY 25. This represents an appropriation increase of $576.6 million in FY 24 compared to FY 23’s estimated spending. FY 25 is $3.32 billion higher compared to FY 24’s appropriations. When one includes all the other fund groups in the budget bill (federal, state lottery, dedicated purposes, etc…) HB 33 appropriates $95.0 billion in FY 24 and $95.7 billion in FY 25. A spreadsheet breakdown of the bill’s line items is available here. The Department of Medicaid’s GRF appropriations, which include federal matching dollars, are the largest of any state agency at $19.5 billion in FY 24 and $22.2 billion in FY 25. Of this department’s GRF appropriations, $13.5 billion in FY 24 and $15.3 billion in FY 25 are from the federal match. The Ohio Department of Education and Workforce has the highest state-only GRF appropriations at $9.4 billion in FY 24 and $9.8 billion in FY 25. Statutory Provisions In addition to the appropriations, the budget contains hundreds of statutory changes. While all of the items can be viewed in the bill itself or in the Legislative Service Commission’s (LSC) Comparison Document , some of the more noteworthy provisions will be described below. This is by no means an exhaustive listing; however, it will provide an overview of items that have generated interest around Capitol Square and around the state of Ohio. The reference numbers used in the items below are taken from the Comparison Document to provide readers with an easy way to search for additional information. Usage of One-time, FY 23 Dollars Fiscal Year 2023 Ending Fund Balance Allocations (OBMCD38 & OBMCD37) – Of the nearly $6.5 billion in unobligated funds at the end of FY 23, dozens of appropriations and transfers occur in Sections 512.10 and 513.10 of HB 33. Here are some that have garnered the most attention:

  • $700,000,000 for the One Time Strategic Community Investments Fund. This fund has yet to be appropriated via an agency. Future legislation is expected to disburse these funds. (OBMCD38)

  • $667,000,000 for the All Ohio Future Fund to be used by the Department of Development for economic development purposes. (DEVCD29 & DEVCD46) {The Governor vetoed a portion of the language regarding usage of this fund and eliminated a section to ensure the state Controlling Board maintained final project approval. This is Veto Number 12.}

  • $500,000,000 for the Connect4Ohio Fund within the Department of Transportation for roadway projects, mostly in rural counties. (DOTCD53)

  • $270,000,000 for the H2Ohio Fund to continue water quality programs. This funding is used by the Ohio Department of Agriculture, the Ohio Environmental Protection Agency, the Lake Erie Commission, and the Ohio Department of Natural Resources.

  • $125,000,000 for the Innovation Hubs Fund to expand the innovation hub program within the state. The Department of Development oversees the usage of these funds. (DEVCD32)

  • $741,000,000 for the aforementioned Expanded Sales Tax Holiday costs. (TAXCD89) {The Governor made changes to the expanded sales tax holiday proposal in Veto Item Number 26. More detail is given on this in the Tax Section below.}

Education Transfer of K-12 Governance (EDUCD137) – The Ohio Department of Education is renamed the Department of Education and Workforce. The director of this agency will be appointed by the Governor with the advise & consent of the Senate. Within the department, two divisions are created: Primary & Secondary Education and Career-Technical Education. Most of the powers and duties of the State Board of Education and the Superintendent of Public Instruction are transferred to the department. Continues the “Cupp-Patterson” formula for Traditional School District Funding (EDUCD38) – The allocations for this formula are $8.06 billion in FY 24 and $8.28 billion in FY 25. Expanded Eligibility for EdChoice Scholarships (EDUCD26) – Expands eligibility for the EdChoice Scholarship program to any student entering K-12 in the school year for which the scholarship is sought with graduated levels of state assistance based on family income. LSC estimates costs for all scholarships, those existing prior to the budget as well as the changes within HB 33, as $964.5 million in FY 24 and $1.05 billion in FY 25. Teacher Base Salary (EDUCD107) – Increases the base minimum teacher salary from $30,000 to $35,000. Substitute Teacher Eligibility Expansion (EDUCD153) – Makes permanent a provision that was set to expire in statute permitting a school district to hire a substitute teacher that does not hold a post-secondary degree. Nonlicensed School Employees Background Checks (SBECD3) – Requires the State Board of Education to enroll all nonlicensed employees and contractors in the Retained Applicant Fingerprint Database (RAPBACK). Expands the Ohio College Opportunity Grant Program (BORCD35 &BORCD73) – Increases appropriations and income-eligibility for the state’s need-based higher education grant program. Tuition and Fees at Public Higher Education Institutions (BORCD112 & BORCD41) – Caps tuition and general fee increases for in-state undergraduate students at public universities to 3.0% annually under each institution’s guarantee program. Each community college may increase its in-state undergraduate tuition and general fees cost by $5 per credit hour compared to the previous year.

General Government Limitations on State Appropriations (OBMCD46) – Starting in FY 28, reduces the State Appropriation Limitation from 3.5% allowable annual growth to 3.0% and eliminates the alternative growth factor that included inflation. Also subjects more revenue sources to the limitation. {The Governor vetoed this provision, stating concerns about the inflation factor not being considered within this proposed language. This is Veto Number 18.} Budget Stabilization Fund Increase (OBMCD43) – Increases from 8.5% to 10% the amount of GRF revenues for the preceding fiscal year intended to be maintained in the state’s “rainy day” Budget Stabilization Fund. As of June, the BSF had a balance of $3.48 billion. Revisions to the Residential Broadband Expansion Grant Program (DEVCD80) – Limits the ability of the state’s Broadband Ohio office to give public grant funding to wireless broadband service providers other than in certain “extremely high cost per location threshold areas.” Terms of Public Works Commissioners (PWCCD11) – Increases OPWC commissioner terms from 3 years to 4 years. JobsOhio Contract Extension (COMCD47) – Allows the state to extend the transfer agreement with JobsOhio for spirituous liquor distribution in Ohio for an additional 15 years. Parental Leave Benefits for Eligible State Employees (DASCD22) – Eliminates the 14-day unpaid waiting period and triples the parental leave period. This results in a total of 12 weeks of parental paid leave at 70% of the employee’s base pay rate. Parental Consent for Online Activity (AGOCD28) – Requires an online operator to obtain and verify parental or legal guardian consent for unemancipated persons under the age of 16. Prohibition of Certain Web Applications (DASCD42) – TikTok, WeChat, and other Chinese-owned apps are not permitted on state-owned computers, networks, or devices. {The Governor initially created a policy for this proposal in an Executive Order (2023-03D). He partially vetoed this provision creating a statutory version of the app ban by eliminating the rule promulgation component and correcting a technical error to ensure the ban applied to all state devices. This is Veto Number 8.} Professional Licensure (CSWCD2 & MEDCD3) – Creates a professional licensure requirement for art therapists and music therapists. Creation of the Division of Marijuana Control (COMCD18) – This division, being created within the Department of Commerce, will receive the Marijuana Control Program from the Ohio Board of Pharmacy. Creation of the Department of Children and Youth (KIDCD1) – This new agency will be the state’s primary children’s service agency with children’s services functions from Job and Family Services, Education and Workforce, Health, Developmental Disabilities, Medicaid, and Mental Health & Addiction Services being transferred by early 2025. Creation of the Ohio Deaf and Blind Education Services entity (OSBCD1) – Establishes this entity and places the State School for the Deaf and State School for the Blind under it. Prohibition of Local regulation of Tobacco and Nicotine Products (LOCCD38) – Prohibits local regulation of tobacco and alternative nicotine products. {The Governor vetoed this provision. This is Veto Number 24.} Free Samples of Tobacco and Nicotine Products (DOHCD58) – Prohibits giving away samples of cigarettes, tobacco products, or alternative nicotine products to persons under 21. {The Governor vetoed a component of this section that incorrectly referenced free samples of tobacco products, which is already prohibited by Ohio statute. This is Veto Number 11.} EPA Fee Sunset Extension (EPACD9) – Extends for two years many Ohio EPA fees. Appeals of Administrative Orders (JSCCD16) – Allows that an entity adversely affected by an agency order may appeal to the Court of Common Pleas in the county where the place of business is located or in the county where a party is a resident rather than Franklin County. (This is also contained in recently enacted SB 21.) Special Election Funding (SOSCD17) – Appropriates $16 million to pay the costs of the special election in August of 2023. Taxation Personal Income Tax Rate Reductions (TAXCD68 & TAXCD83) – The number of tax brackets for the state personal income tax will be reduced to two for tax year 24 and beyond with the top marginal rate being set at 3.5%. The LSC estimates revenue losses from these changes will be $909.0 million in FY 24 and $961.0 million in FY 25. {The Governor vetoed a component of the income tax change provisions with regards to the Tax Commissioner adjusting withholding tables based upon a transfer from the state’s Budget Stabilization Fund. This is Veto Item Number 13.} Commercial Activity Tax Expansion of Business Exclusions (TAXCD81) – Excludes from the CAT businesses with taxable gross receipts of $3.0 million or less in 2024 and of $6.0 million or less in 2025 and thereafter. LSC estimates this will reduce CAT receipts by $238.0 million in FY 24 and $460 million in FY 25. {The Governor vetoed language that would have prevented taxpayers below the exclusion threshold from needing to file CAT returns. So, although the new exclusion will eliminate CAT liability for nearly 85% of all previous CAT filers (principally small businesses), those small businesses may still be required to file a quarterly CAT return. This is Veto Item Number 39.} Sports Gaming Tax Rate Increase (TAXCD33) – Increases the sports gaming tax rate from 10.0% to 20.0% beginning in FY 24. LSC estimates this will generate $100.0 million - $135.0 million per year. Sales Tax Holiday Expansion (TAXCD89) – Creates an expanded sales tax holiday in August of 2024. During the days of the holiday, all items of tangible personal property priced at $500 or less will be state and local sales tax exempt. This does NOT include alcohol, marijuana, tobacco, vapor, motor vehicles, or watercraft. The budget proposes utilizing $741 million of FY 23 ending fund balance surplus to cover the cost of the holiday. {While expressing support for an extended sales tax holiday, the Governor vetoed the components of this proposal which would have allowed the Tax Commissioner, the director of the Office of Budget and Management, and the Ohio County Commissioners Association to set the length of sales tax holidays in 2025 and beyond. The veto also eliminated the requirement that the expansion for 2024 be at least 14 days. A later determination will be made as to how long the expanded sales tax holiday will last in 2024. This is Veto Number 26.} Sales Tax Exemption for Baby Products (TAXCD29) – Exempts child diapers and related products as well as car safety seats, cribs, and strollers from the sales tax. This is estimated to reduce state revenues by $10.7 million in FY 24 and $16.0 million in FY 25. Motion Picture Production Credit Increase (TAXCD34) – Increases the “Film Tax” credit from $40.0 million per fiscal year to $50.0 million and specifies the usage of the credit for certain types of capital and production costs. Indexes the Homestead Exemption on Real Property Taxes for inflation (TAXCD52) – This adjusts the homestead exemption for inflation in 2023 and 2024 for real property and homes subject to the manufactured and mobile home tax. Joint Committee on Property Tax Review and Reform (TAXCD69) – Creates a committee of five Senate members and five House members to hold hearings and make recommendations on ways to reform Ohio’s property taxes.

Institutes Low-income and Single-family Housing Development Tax Credits (TAXCD32 & TAXCD 31) Creates nonrefundable tax credits against personal income, insurance premium, or financial institution taxes for specified housing projects. Municipal Income Tax (TAXCD58) – Exempts minors from municipal income taxation.

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