Ohio Office of Budget and Management Director Elaborates on Governor Kasich’s 2014-15 Operating Budget

    View Authors February 2013

    House Finance and Appropriations Committee Chairman Ron Amstutz (R-Wooster) called the first hearing to order and Office of Budget and Management (OBM) Director Tim Keen delivered his 68-page testimony on Governor Kasich’s Executive Budget proposal. Chairman Amstutz indicated that the full committee will hear a more in-depth discussion of the tax changes in the budget on Tuesday, February 12, 2013; education on Wednesday, February 13; and health and Medicaid issues on Thursday, February 14. Subcommittees will then take up consideration of the budget the week of February 18. Actual Budget language is expected to be produced sometime next week.

    Director Keen’s testimony began with a summary of the State’s fiscal condition and revenue forecast [pages 1-21] and then went on to discuss the “five major initiatives” – (1) Education Funding and Reform [pages 21-34] – (2) Medicaid Transformation [pages 35-44] – (3) Tax Cuts and Reform [pages 45-51] – (4) Jobs and Transportation Plan [pages 51-55] – (5) Continuing Review and Reform of State Government [pages 55-57]. Legislative Service Commission (LSC) Director Mark Flanders then provided a Baseline Forecast of GRF Revenues and Medicaid Expenditures. Below are some of the key points made in Director Keen’s Testimony related to the budget areas most affecting healthcare.

    Medicaid Transformation

    • Medicaid represents 25% of the state share GRF budget and about 45% of the total GRF with federal reimbursement.
    • Medicaid Office restructured. ODJFS will become a sister agency retaining only functions related to providing administrative funding to county departments of jobs and family services.
    • Woodwork Effect challenges – 230,000 people will become enrolled in Medicaid by June 2015.
      • Increases GRF baseline estimates by $520.4 million ($186.3 million state share) in FY 2014.
      • Increases GRF baseline estimates by $933.4 million ($334.8 million state share) in FY 2015.
    • Baseline Projections:
      • State share-only GRF appropriations reflect projected growth of 15% in FY 2014 and 5.2% in FY 2015.
      • Administration concerned about these growth rates.
    • Cost Avoidance Initiatives:
      • Targeted at providers such as health plans and hospitals.
      • Intended to emphasize value and incentives for cost-effective care.
      • Accomplished largely through payment methodology changes.
      • The Cost Avoidance totals $517.2 Million ($190.5 Million in state share) in FY 2014 and $801.2 million ($296.3 million in state share) in FY 2015.
    • Medicaid Expansion:
      • Affordable Care Act requires states to increase Medicaid eligibility for all adults to 138% of the federal poverty level.
      • States have flexibility to decide whether or not to extend coverage.
      • Enhanced federal funding is not available for partial Medicaid expansion.
      • Decision was made to extend up to 138% in Ohio.
      • Greg Moody, Director of Office of Health Transformation to elaborate next week.

    Tax Cuts and Reform

    • Net tax cut of $1.4 billion across three fiscal years.
    • Taxes applied to services on the same basis as goods, so all services are taxable unless those services are specifically exempt such as healthcare and education.
    • Small business income taxes cut by 50% of their annual pass-through income, up to $750,000 with the deduction capped at $375,000.
      • Expected to provide between $600 million and $650 million annually in tax relief.
    • Income tax rates cut by 20% for all nine brackets.
      • Phased in over three years 7.5%, 15.0%, & 20.0%.
        • Expected to provide tax relief of $1.04 billion, $2.08 billion, and $2.15 billion respectively.
    • Sales tax would be reduced from 5.5% to 5.0%, but would expand the sales tax base to include services.
    • Severance Tax established for high-volume horizontal wells.
      • Tax rates will be 1% for natural gas and 4% for oil, natural gas liquids, and condensate.
      • Still the lowest tax rate amongst eight state study conducted by Ernst & Young (MI, PA, WV, AK, ND, OK, TX).
      • Estimated gains to the GRF of $45 million in FY 2014, $155 million in FY 2015, $305 million in FY 2016, and $415 million in 2017.