CHICAGO — As Ohio Gov. Ted Strickland and U.S. Treasury Secretary Timothy Geithner yesterday touted the state's planned use of $260 million of federal qualified school construction bonds to support state schools, Strickland faces growing discontent — and a trio of court challenges — over the state's current two-year budget.
Strickland and Geithner yesterday held a press conference at an elementary school in the town of Berea outside Cleveland to tout the federal stimulus program's efforts to support the state's sagging economy. Berea is one of 60 school districts expected to use taxable QSCBs as created under the American Recovery and Reinvestment Act. Under the plan, either the district or the state can issue the bonds and benefit from the 0% interest bonds as investors take a tax credit on the bonds instead of receiving interest payments.
Ohio plans to issue a total of $260 million of the bonds, officials said. Earlier this month, the Loveland City School District became the first district in Ohio to issue QSCBs when it sold a $6 million issue with Robert W. Baird & Co. as underwriter.
"Ohio is a clear example of how successful Recovery Act bonds can be in helping states pursue much-needed development infrastructure projects during these challenging times," Strickland said at yesterday's press conference.
Ohio has received a total of nearly $6 billion in federal stimulus funds, much of which the state is using to plug budget holes as revenues continue to dwindle. Signed into law less than a month ago, the state's two-year, $50.5 billion budget relies on at least three revenue proposals that are being challenged in court. The Strickland administration is appealing two rulings and preparing arguments before the state Supreme Court to defend a third proposal.
The highest-profile dispute targets Strickland's plan to install 17,500 video slot machines at the state's seven horse-racing tracks. An anti-gambling group has asked the state Supreme Court to rule that Ohioans should be allowed to vote on the plan. The administration, which estimates the plan will raise $933 million in education funding, has said a vote on the proposal would delay new revenue badly needed in the current fiscal period.
The court is set to hear arguments on the case Sept. 2.
On Sept. 1, the court is scheduled to hear arguments over whether the state's new business tax, the commercial activities tax, should apply to grocers. The measure, estimated to raise $188 million next year if applied to grocers' gross receipts, is being opposed by the Ohio Grocers Association, which has already won an appeals court ruling on the issue. The state is appealing that ruling.
The state this week also said it would appeal last week's ruling by a Franklin County judge that blocks it from using $230 million from the tobacco prevention fund — essentially draining the fund — to pay for health care and related services. In his ruling, Franklin County Common Pleas Court Judge David Fais said the move was unconstitutional and that the state had a "reasonable alternative" in issuing bonds instead of using the fund money.
In related news, the state's popular $1.6 billion Third Frontier technology advancement program is running out of funds and state officials plan to ask voters for authority to issue more bonds to finance the program on the May 2010 ballot. The 10-year program, which is scheduled to end in 2012, has previously been funded with a pair of $500 million bond issues and general fund revenue. Strickland recently abandoned efforts to get the bond question on the November ballot in the face of legislative reluctance.
In June, Fitch Ratings and Moody's Investors Service 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. Standard & Poor's rates the GOs AA-plus.
