Governor Taft debates penny sales tax for budget issues

COLUMBUS, Ohio — Will they or won’t they?

Gov. Bob Taft and lawmakers don’t have to enact a two-year budget until next June, but attention is already shifting to how to balance that budget and whether to keep a temporary one penny sales tax.

That tax, which generated about $2.5 billion this year and last, expires June 30 and lawmakers must take a vote to keep it in place.

Lawmakers “seem adamant about not reinstating it, but they’re going to find realistically they can’t balance the budget without it,” said Rick Yocum, president of the Ohio Expenditure Council, a nonpartisan budget research group. “Our recovery isn’t coming on a pace equal with the nation’s.”

In a speech on Medicaid spending last week, Taft said the money raised by the temporary tax would not be available when it came to planning the 2006-2007 budget. Taft, a Republican, will present his budget proposal — the fourth and last of his administration — early next year.

Ohio enacts two-year spending plans and, unlike the federal government, is constitutionally mandated to balance its budget.

After his speech, however, Taft left open his plans for keeping that penny permanent. “We’re not even there yet, we’re not even close to making those decisions,” he said.

The penny has been controversial from the start. Critics of the governor said his support of it went against a promise never to enact a statewide tax increase without a vote of the people.

Secretary of State Kenneth Blackwell, a Cincinnati Republican, pushed an unsuccessful attempt to have the tax repealed early, saying it was part of a burdensome economic trend driving Ohio’s economy into the ground and chasing young people out of the state.

But even other Republicans warned against an early repeal, saying it would create a crisis as Ohio scrambled to pay for needed social services.

Ohio faced a similar situation more than two decades ago when Gov. James Rhodes and lawmakers balanced the budget by temporarily raising the sales tax from 4 to 5 cents. That temporary increase quickly became permanent in 1981.

Ohioans remember that switch and will be skeptical if lawmakers signal they might try it again, said Linda Woggon, governmental affairs director for the Ohio Chamber of Commerce.

As a result, lawmakers will “think long and hard about what they do,” she said.

The chamber, which represents business interests statewide, isn’t taking a position on the penny increase yet but wants lawmakers to look again at ways to reduce spending.

Keeping the tax would be difficult based on lawmakers’ stated intentions to end it next year, said state Sen. Bill Harris, an Ashland Republican who is presumed to become Senate president in January.

“Having said that, everybody has to realize when it’s not retained what that means in relationship to the cuts that are going to have to be made,” he said.

Budget analysts say Ohio faces serious problems with or without the tax. The current $48 billion budget is balanced in part with $3.9 billion in one-time money such as the sales tax and a $776 million infusion of federal dollars.

In the meantime, estimates show that expected revenue won’t pay for existing programs, according to the Cleveland-based Center for Community Solutions, a nonprofit think tank that studies social service needs in the Cleveland area, Ohio’s largest metropolitan center.

Even if the Legislature renews the penny sales tax, additional revenues or deep cuts will be needed to balance the upcoming budget, David Ellis, a senior fellow at the center, concluded in a policy paper earlier this month.

The incoming Senate minority leader says the most important thing is to examine Ohio’s entire tax structure, something lawmakers dodged during the last budget deliberations.

“I’m committed to looking at all revenue tax reform options,” said Sen. C.J. Prentiss, a Cleveland Democrat. “We haven’t done that — all we’ve dealt with is gay marriage, guns, tort reform.”