CHICAGO - The Ohio legislature was poised yesterday to approve a new, two-year $52 billion budget that wipes out a $3.2 billion shortfall through more than $2 billion in cuts and $933 million in new funding expected from expanded gaming.

The state entered the new fiscal biennium July 1 with a temporary budget in place due to an impasse between Democratic Gov. Ted Strickland and Republicans, who control the Senate, over the governor's proposal to allow video slot machines at the state's seven racetracks.

Republicans wanted the governor either to act through executive order or put the issue to a voter referendum, while Strickland sought legislative action. Democrats hold a majority in the House.

A compromise agreement was announced on Friday by Strickland, Senate President Bill Harris, and House Speaker Armond Budish on a final budget plan that called for the governor to use his executive powers to authorize the slot machines. A legislative conference committee signed off on the plan yesterday, sending it to the House and Senate chambers where it was expected to be approved.

Strickland will issue a directive instructing the state's lottery director to take all necessary actions to implement video lottery terminals at racetracks, and lawmakers will acknowledge the lottery's authority to install video lottery terminals in the budget documents.

"With this understanding, I am confident that the legislature can now move quickly to enact a balanced budget that rightly prioritizes education as the foundation of Ohio's economic revival, reduces state government spending while minimizing the impact on critical health and safety services, and does not raise taxes on Ohioans or Ohio businesses struggling through this recession," Strickland said in a statement.

The budget cuts $1.4 billion in funding for various state agencies and departments and boards while $770 million was trimmed from Medicaid spending.

Fitch Ratings and Moody's Investors Service last month lowered the state's general obligation rating. Moody's moved the credit down one notch to Aa2 and Fitch dropped it one notch to AA due to the overall deterioration of the state's credit profile and declining financial flexibility.

The downgrade affected $6.8 billion of GOs and $2.8 billion of appropriation-backed debt that carries ratings one notch lower than the GOs. The outlook on the credit is now stable.

The state's still-solid credit is supported by its history of prompt action to address budget shortfalls, its rebuilding of reserves - although they were drained to address a $900 million shortfall in the fiscal 2009 - well-funded pensions, and strong liquidity.

Ohio's challenges include its 2005 tax restructuring, which is straining the balance sheet in the current recession; dwindling revenue; and the use of one-time revenues - such as reserves and payment delays - to address the current shortfall, Moody's wrote. The state also entered the current recession more poorly equipped to deal with dwindling revenue because its past economic recoveries have lagged the national average.

Standard & Poor's rates the state GOs AA-plus.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.