Cities want a cut of state surplus cash
LORAIN, Ohio — Welcome to Lorain, where the mayor, Chase Ritenauer, would like to show you around.
The police car over there? It broke down during a pursuit not long ago, leaving the officer to continue the chase on foot.
The new high school? It is part of a school system so badly underfunded that it is now overseen by the state.
Traffic signals are kept operating with parts recycled from discarded traffic lights.
This city of 63,000 is in such dire financial straits that it has ceded part of an administrative building to raccoons; repeatedly calling the exterminator was too costly.
But even as Lorain and many other Ohio cities are barely scraping by, the state government is flush with money.
Ohio announced a budget surplus of $657 million in July. State officials have made it clear, however, that none of the windfall will go to Lorain or any other city or town, many of which are struggling because of heavy cuts made by the state over the years.
Instead, Ohio is putting it all away in a rainy-day fund that now totals nearly $2.7 billion.
What’s happening in this political swing state offers a snapshot of what is playing out across the country. As states reap the benefits of an expanding national economy, at least 39 have reported budget surpluses — leaving joyous but somewhat perplexed state officials to figure out what to do with the unexpected cash. Last year, 17 states had surpluses, according to the National Association of State Budget Officers.
Rainy-day funds are pots of money governments can turn to if things go bad. But the funds have a mixed record. In the past, state lawmakers often used them for political expediency — paying for employee raises, for example, rather than making cuts or raising taxes.
But state finances have changed so precipitously since the Great Recession more than a decade ago that there is a general wariness about what might come next. Many state officials have been reluctant to increase spending. Still, the combination of a surplus and fresh revenue means that states that had endured years of involuntary frugality are virtually swimming in cash.
Notably, West Virginia concluded a budget cycle with a surplus — without having to resort to midyear budget cuts — for the first time in six years.
California, with a $9 billion surplus, sent about $6 billion to its rainy-day fund.
Virginia, which had a $551 million surplus, placed all of it in reserve.
And more than three-quarters of Maine’s $101 million surplus was set aside.
In Ohio, the decision about whether to spend money on pressing needs or stash it away has largely fallen along ideological lines.
Republicans have tended to favor building Ohio’s reserves, while Democrats have supported using the money to address more immediate needs, including a devastating opioid crisis, a decaying infrastructure and overwhelmed police departments.
Ohio has been on a financial roller coaster in the last decade. There have been deep budget cuts since the recession, and only last year, budget officials were predicting a $1 billion deficit before a surge of tax revenue changed everything.
The governor, John Kasich, said state officials like himself were simply being prudent — the consequence of bitter lessons learned from the recession, when state governments amassed $117 billion in deficits in 2009 alone.
Saving money in good times, he said, “gives you an opportunity not to be in a panic” if things go sour.
“We’ve learned our lessons over the last two or three recessions,” said John Hicks, executive director of the National Association of State Budget Officers. “The economy goes up, it goes down. There has been a lot of pressure on governors to put money away.”
Uncertainties remain about whether the budget bonanzas are a single-year phenomena and about the ill effects of potential trade wars and lagging wages.
A study by the Ohio Municipal League found that more than 90 percent of cities and towns have delayed significant road repairs and that nearly threequarters of the state’s municipalities have replaced full-time employees with part-time workers and increased fees to maintain basic services.
Ohio’s disbursements from one crucial funding mechanism, the Local Government Fund — money the state sends to municipalities each year based on population and property tax values — have been cut to $349 million in 2017 from $674 million in 2007.
Cities say significantly less revenue from property taxes and the state’s repeal of the estate tax have also hurt their ability to balance budgets.
In Middletown, a city of 48,000 in southwestern Ohio, Mayor Larry Mulligan Jr. said the city had lost 10 percent of its revenue because the state reduced or eliminated taxes and imposed funding cuts.
Middletown has laid off firefighters, canceled Fourth of July fireworks, and sharply reduced services, Mulligan said.
Potholes abound. “We’ve tried to keep up the major thoroughfares, but there are sections that are pretty bad,” he said.
He said he had proposed a quarter percent income tax increase this year to generate $3 million a year to repair roads.
But the City Council balked, and he said he did not press the issue because Middletown has already established a tax to help fund public safety and increased a number of its municipal fees to maintain services.
The city is under a federal court decree to repair its sewer system, which overflows during storms, sending raw sewage into the Great Miami River. The cost is $269 million.
“Looking at the large surplus,” he said, “it’s time to talk about the critical needs of the cities.”
Kasich however, disputes that his tax and funding cuts have caused widespread pain.
“We have a constant whining from local governments,” he said. “They want handouts. They want it to be easy.”