CHICAGO — Ohio Gov. John Kasich Thursday night is expected to sign into law a $112 billion, two-year all-funds budget that closes a shortfall in part by selling the state’s liquor distribution system and six prisons while paving the way for the lease of the Ohio Turnpike.
The first-term Republican governor in two weeks will launch a tour to promote the budget. The tour will include visits to the big three rating agencies and appearances on Sunday morning talk shows, he said.
The $55.8 billion general fund budget closes a projected $6 billion shortfall using the one-time revenue from the asset privatizations combined with savings from a series of cuts, including deep cuts in local government aid.
The Republican-led General Assembly closely followed Kasich’s spending plan in crafting the final budget.
“We have before us a task and a responsibility to provide a plan for the state,” said Rep. Ron Amstutz, R-Wooster, during House debate Wednesday afternoon. “I believe this plan is very responsible and is a plan that will make our state stronger going forward.”
The Senate approved the measure Tuesday in a 22 to 11 vote along party lines. The House continued to debate the bill late Wednesday, but was expected to approve it.
Despite the sweeping privatization plans featured in the spending plan, the Senate at the last minute opted to drop a provision that would have allowed the state to sell or lease the Ohio Lottery. They also abandoned a short-lived proposal to cut their own pay by 5%.
In addition to the privatization plans, the budget curtails union activity, establishes merit pay for teachers, and eliminates the estate tax.
Democrats, who voted against the budget en masse, said the Republicans exaggerated the state’s fiscal position in order to impose sweeping policy changes and that the privatization plans are one-time revenue fixes.
“In this budget, we have lots and lots of one-time money,” said Denise Driehaus, D-Cincinnati, during House debate. “The governor has said we’re not raising taxes, but additional revenues are going to be needed at the local level because we’ve cut their money. So there will be new taxes, but not ours, so essentially we’ve passed the buck.”
Driehaus called the privatization of the liquor distribution system under JobsOhio, a newly created private nonprofit entity that will lease the lucrative system for 25 years, a “sloppy plan that violates the constitution.”
“These are taxpayer dollars and they deserve careful scrutiny,” she added.
Ohio has a monopoly on liquor sales, which are one of the state’s most reliable and growing revenue sources.
With the budget authorization in hand, Kasich is expected to enter into a 25-year, $1.2 billion lease of the state-controlled liquor distribution system with JobsOhio.
The budget anticipates that $500 million from the deal would be put in the general fund in 2012. JobsOhio would use the bulk of the remaining proceeds to retire outstanding liquor-backed bonds.
The state currently has about $410 million of outstanding senior-lien liquor-backed bonds and $165 million of subordinate-lien bonds.
The creation of JobsOhio was one of Kasich’s first proposals when he took office this year. The agency would become the state’s newest bond issuer, with the authority to issue tax-exempt and taxable bonds to finance economic development, largely by investing in Ohio-based companies.
The sale of the six adult and youth prisons is expected to generate $200 million. Of that, $75 million will go into the general fund, with a piece of the remainder used to pay off outstanding revenue bonds.
For the Turnpike, the budget bill specifies that the General Assembly must first approve any deal, and that lawmakers can essentially write the contract, giving them control over toll rates and other provisions.
Ohio currently operates only one toll road, the 241-mile Ohio Turnpike that runs along the northern part of the state. The road is operated by the double-A rated Ohio Turnpike Commission, which also sells debt for the Turnpike. It is a relatively rare issuer that last sold new-money bonds in 2001.
Kasich has said a lease — which cannot exceed 75 years — could generate up to $2.4 billion. Of that, the state would have to pay off $600 million of outstanding bonds, which need to be defeased in the event of privatization.
On the local government side, the budget reduces revenue-sharing aid by a total of $630 million over two years. That includes a 20% reduction in 2012 and a 50% reduction in 2013 from the main revenue aid fund.
It’s the deepest cuts to local aid since the formulas were set up, according to Ross Miller, senior economist for the Ohio Legislative Services Commission.
“That fiscal 2013 fifty percent number is significant,” he said.
The cuts will be permanent, in part because the budget eliminates the estate tax starting in 2013. More than 80% of the revenue generated by the estate tax go to local governments.
The budget includes a provision that makes the Ohio treasurer the primary bond issuer for financings related to state buildings, community colleges, and other projects. The treasurer will supersede the Ohio Building Authority, which typically has issued bonds for state-related capital projects. The budget does not repeal the OBA’s authority to issue bonds, however.
The Senate dropped a provision that would have allowed counties to sell their buildings and then lease them back. County officials lobbying for the provision said it would have meant not having to borrow to finance capital projects.
The spending plan expects to deposit $187 million into state reserve funds that once totaled $1 billion. It currently totals $1.79.
Moody’s Investors Service rates Ohio Aa1 with a negative outlook. Standard & Poor’s rates it an equivalent AA-plus, also with a negative outlook, and Fitch Ratings maintains a AA-plus rating with a stable outlook.