CHICAGO — Gov. Ted Strickland has proposed delaying a planned income-tax cut for two years to fill an $850 million hole that opened up in the budget last week following an Ohio Supreme Court decision that requires the state seek voter approval for a gaming expansion plan.

The ruling put Strickland’s proposal to install up to 17,500 video lottery terminals at the state’s horse-racing tracks on hold, delaying it at least one year and forcing the governor to find a way to replace the anticipated revenue or cut the state’s education budget.

Strickland on Wednesday asked the Legislature to approve a plan to postpone a planned 4.2% decrease in the state income tax rate, the final installment of a five-year, 21% reduction in the tax rate proposed by former Republican Gov. Bob Taft in 2005. Ohio maintains a variable income tax rate that ranges from 0.618% to 6.24%.

Strickland, a Democrat, said the plan would raise $844 million over the biennium.

Democratic House Speaker Armond Budish and Republican Senate President Bill Harris were noncommittal on the proposal yesterday — though they met with Strickland before he announced it — while some House Republicans said they would fight it.

At the same time, Strickland said he has asked the courts to rule on whether the Ohio Lottery has the authority to install lottery machines without legislative approval. “But while we wait for that clarification, we must find another way to balance the biennial budget,” he said at a press conference.

Strickland said delaying the income tax cut is the best of the three available options, which include cutting education spending or raising the state sales tax by half a penny.

“I believe postponing the last part of the scheduled income-tax reduction will protect our schools from destructive cuts while avoiding a sales tax increase on Ohio families and businesses during this recession,” he said. “The budget is not in balance today. We need to act quickly as our ability to balance the budget and protect our schools will become only more difficult with delays.”

Standard & Poor’s last week revised its outlook on the state’s AA-plus credit to negative from stable, citing the likely impact on revenue from the high court’s decision. In late August, Moody’s Investors Service also revised its outlook to negative, just two months after it downgraded Ohio to Aa2. Fitch Ratings also in June downgraded the state to AA. Analysts cited the state’s fiscal and economic challenges as driving the downgrades.

Standard & Poor’s said it would continue to watch the state’s response to the Supreme Court decision and its efforts to achieve structural balance to determine whether it will take additional rating actions.

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