CHICAGO - Ohio Gov. Ted Strickland yesterday unveiled a $55 billion, two-year budget that is balanced in part by refinancing some debt and nearly depleting the state's $1 billion rainy-day fund.
Facing a possible $7.3 billion deficit through 2011, Strickland crafted a budget that features roughly $200 million in salary cuts, $236 million in new or increased fees and fines, and a number of one-time infusions into the state's general fund totaling roughly $1.5 billion.
Officials estimated they would save $400 million by delaying some debt payments until after 2011. Another $3.4 billion in anticipated federal stimulus dollars would help balance the budget.
State budget director J. Pari Sabety introduced the budget yesterday during a press conference. Lawmakers will review the proposal before approving a final spending plan prior to the start of the fiscal year July 1. Strickland is a Democrat and the House is controlled Democrats, while the Senate is dominated by Republicans.
Despite the looming deficit, the $54.7 billion, two-year budget represents an increase from Ohio's current $52 billion spending plan, an increase that's necessary to preserve essential services like education and health care, according to Sabety.
"State government must be growing now as we face the worst economic recession in 30 years," she said.
Under the budget plan, Ohio would spend $948 million of its rainy-day fund in 2011 to help plug projected revenue shortfalls. The move means a near-depletion of the reserve account, which is considered a key factor in the state's credit rating from ratings agencies. After draining the fund in fiscal 2002 and 2003, the state had rebuilt it by the end of fiscal 2006.
Ohio is one of many states expected to dip into reserves to balance upcoming budgets, said Moody's Investors Service analyst Ted Hampton.
"We're seeing many states that had been able to rebuild their reserves prior to the start of the recession are now using those reserves," he said. "While using a rainy-day fund's contents is understandable in context of the current recession, it will leave Ohio less flexibility and cushion in the future. We're going to be looking at any plans they have to restore those reserves and return to a structural balance quickly."
The plan to restructure a piece of the state's GO debt is one of Strickland's central strategies to generate savings. Officials said they could free up around $424 million in the general fund by delaying debt service payments currently scheduled for 2010 and 2011.
Under the proposal, the state would refund roughly $409 million in noncallable debt that financed common schools, higher education, and local infrastructure projects. The new bonds would be repaid starting in 2012 through 2021, according to budget documents. Only cost of issuance would be paid before 2012.
The Ohio Public Facilities Commission would issue the refunding bonds. The state plans to sell the refunding bonds in one or two issues starting later this year depending on market conditions, said Kurt Kauffman, the state's debt manager.
Because the restructuring would include a relatively small amount of debt - about 5% of the state's roughly $8.6 billion in debt backed by general fund revenue - and would feature a repayment period of 10 years, the move would have little impact on Ohio's overall debt amortization schedule, of which about 70% is now retired within 10 years, according to budget documents.
On the spending side, Strickland's budget proposes increasing education funding by nearly $1 billion through 2011. The budget also increases prison funding by $100 million - though the governor warned that at least one prison would likely have to be closed by 2011 without changes to the state's sentencing laws - and health care coverage for more uninsured Ohioans.
State officials estimate that general fund tax revenues will dwindle steadily over the next few years. Tax revenue was estimated at $19.4 billion in 2008, and projected to total $18 billion in 2009, $17.2 billion in 2010 and $17.3 billion in 2011.
