The Ohio General Assembly's ruling Republicans — House Speaker Larry Householder and Senate President Larry Obhof — can't even agree whether they can produce a compromise state budget by the time the interim budget expires Wednesday.

While declining to concede another budget extension will be needed, Householder said he is "not confident at all" a deal can be struck with the Senate amid ongoing disagreement over tax and policy issues.

"The ball is not really in the House's court," Householder said Thursday. "We need to see some negotiations, some movement on the Senate's part."

Obhof is not as pessimistic, saying there's plenty of time left. "I don't see any reason why we wouldn't be able to have a budget next Wednesday ... I think we have five to 10 hours of work left once we reach agreements on some of the big-picture items," he said.

The big-picture item that complicated budget talks Wednesday night were major shifts from both chambers on the so-called "small business" tax break valued at $1.2 billion a year. It has been a sticking point pre-dating the failure of the legislature to deliver a two-year operating budget by the June 30 deadline.

The Senate, backed by first-year GOP Gov. Mike DeWine and business interests, now proposes to keep the tax break whole after previously voting unanimously less than a month ago to scale it back by $300 million in its version of the budget. Householder countered with a proposed amendment to take the tax cut away from "service-oriented businesses" such as lobbyists, attorneys, certified public accountants and consultants.

Against that backdrop, the Senate offered to reduce its proposed two-year 8 percent across-the-board income tax cut to a first-year 4 to 4.5 percent cut to help free up $125 million for spending priorities of the House, which approved a 6.6 percent income tax cut. The Senate's offer would offset its budget's removal of $125 million the House had targeted to low-wealth rural school districts. The Senate voted to spend that money instead on private school vouchers, other education programs and give $37 million to generally well-to-do suburban districts with growing enrollments whose state aid is capped.

 

Big obstacle

 

But the breaks for businesses that file their taxes as pass-through entities remain a big obstacle to an agreement.

The House, contending the breaks have not served to create jobs promised when the cuts were enacted, voted in its budget to nearly halve the income tax deduction that allows partnerships, LLCs and sole proprietors to pay no tax on up to $250,000 in annual income, plus receive a 40 percent tax cut on income over $250,000. Its budget would eliminate the extra tax break for Ohio’s wealthiest business filers above $250,000 and lower the new no-tax level to $100,000 retroactive to Jan. 1.

State taxation department figures show that 86 percent of the businesses that currently get the tax break would not be affected by the House changes, meaning the dispute revolves around the 14 percent making the most money.

The original Senate plan, now taken off the table, would have kept the tax break intact for this year and retained the $250,000 no-tax level next year while eliminating the extra tax cut on income over that level.

Householder said the business owners he is targeting for loss of the tax break "are not generating employment."

The speaker implied that word of his proposal quickly made its way to business interests around Capitol Square.

"If the administration is going to call those people who benefit from a special tax break, of course the answer they are going to get is that they don't want any change," Householder said.

Obhof and Senate Finance Committee Chairman Matt Dolan, R-Chagrin Falls, said Householder's late move is unworkable because its financial bottom line and other tax effects cannot be quickly calculated and "would not be prudent."

 

Other issues

 

Householder and Obhof said other points of contention in the budget talks involve transparency in health care pricing and how to best crack down on pharmacy benefit managers, which have pocketed excess profits from Ohio’s Medicaid prescription drug program and failed to fully reimburse pharmacists for their costs.

Again, the Senate leaders say Householder just dropped a revamped PBM plan on them — leaving, as with the proposed tax cut changes, little time to analyze the proposal.

The sides appear to have agreed to declare a moratorium on the state takeover of academically failing school districts, instead tackling the matter in a separate bill. Talks continue over new high school graduation standards and how lenient, or tough, they should be.

DeWine said Thursday morning he could not pinpoint the reason for the impasse, but insisted, “it’s time to get a budget.” The temporary budget that continued spending at current levels has not affected state government operations, but is stalling planning for the future, he said.

The governor is disappointed talks have dragged, but pleased his first state budget proposal was largely embraced by Republicans and Democrats alike in the legislature, setting aside hundreds of millions of dollars to help needy children and fund other priorities such as battling toxic algae blooms in Lake Erie.

DeWine said he is confident a budget will get done. Democrats and other critics painted the failure to produce an on-time budget during relatively good economic times as embarrassing for the Republicans, who control the governor's office and have super-majorities in both branches of the legislature. The budget extension was the first in a decade and only the second since 1991.

 

 

Dispatch reporter Bill Bush contributed to this report. Contact Randy Ludlow at rludlow@dispatch.com. On Twitter: @RandyLudlow.