By Marty Schladen, Ohio Capital Journal
In May 2020, Ohio Gov. Mike DeWine announced $775 million in state spending cuts in the face of what he expected to be lower tax revenues due to economic dislocation caused by the coronavirus pandemic.
The cuts included $300 million whacked from K-12 education and $210 million from Medicaid, the health program for the poor. DeWine decided to make them instead of dipping into the state’s $2.7 billion rainy day fund.
In hindsight, the move is receiving scant support from a panel of Ohio economists.
In a survey published Monday by Scioto Analysis, the panel was asked whether they agreed that “The DeWine Administration’s decision in 2020 to cut spending rather than use ‘Rainy Day’ budget stabilization funds during the pandemic will lead to more economic growth for Ohio in the long run.”
Only about a fifth — 5 of 24 — did. Sixteen disagreed and three said they were uncertain or had no opinion.
At the time DeWine announced the cuts, it’s understandable that he expected the bottom to fall out of state tax revenues.
He was only beginning to allow retail stores and service businesses to reopen. Still uncertain was when bars and restaurants would reopen for inside service. Legions of Ohioans were out of work.
“If we don’t make these cuts now, the cuts we will have to make next year will be more dramatic,” DeWine said at the time, according to The Columbus Dispatch. “These decisions were not easy. We did not make them lightly, but they are necessary. As many of our businesses are making adjustments in this difficult time, so must our government.”
Less clear, however, is why the governor was reluctant to dip into the rainy day fund in the middle of a once-in-a-century pandemic.
Economist Michael Myler of the University of Mount Union said that cutting spending while the economy is contracting won’t help it to expand.
“Cutting spending is a contractionary fiscal policy,” he commented as part of the survey. “A contractionary fiscal policy is unlikely to lead to economic growth. Why have a ‘rainy day’ fund if you are reluctant to use it on a rainy day?”
Kent State University economist Curtis Reynolds also disagreed with DeWine’s cuts. He appeared to note that the cuts were made on the backs of those harmed by the pandemic.
“It is nice to have a rainy day budget for future emergencies, but hard to believe that there will be anything in the near future like what we experienced during this pandemic,” he said. “So we saved money for what, exactly? The pandemic is likely to have long term consequences for firms, workers, children, schools, etc.”
But an economist who agreed with the budget cuts said that keeping the rainy day fund intact can be an economic end in itself.
“The ability to raise funds in the future through bond financing for growth opportunities is enhanced by good budget stability strategies,” said Kenneth Fah of Ohio Dominican University.
In any case, the revenue shortfalls on which DeWine predicated the cuts don’t seem to have materialized.
The Office of Budget and Management’s annual report for the year ending June 30, 2020 showed general fund revenue of about $38 billion — nearly identical to a year earlier.
The report for the year ending June 30, 2021 isn’t out yet, but in monthly reports since then, tax revenues seem pretty healthy. They’ve averaged 3.7% above estimates.
A possible reason for higher revenue is that federal COVID relief is thought to have substantially boosted individual income, making it possible to pay more taxes.
Photo: Gov. Mike DeWine outlined his objections to Senate Bill 22 during a COVID-19 press conference on Thursday, March 11. Screenshot courtesy The Ohio Channel.
Reposted with permission under a Creative Commons CC BY-NC-ND 4.0 license. Original post can be read here.