Ohio has a budget problem, and it goes by the name of SAL, the State Appropriation Limitation. I raised the matter last week in this space in discussing the findings of John Begala, a former executive director of the Center for Community Solutions, a Cleveland-based think tank. He has charted the state’s decade of disinvestment, from 2008 to 2018, steep declines in real dollars for such priorities as higher education, transportation, human services and local governments.
Spending on primary and secondary education increased when adjusted for inflation, yet just 5 percent for the decade.
Mike DeWine, the governor-elect, has pledged to increase funding for early education and high-quality child care. He also has put emphasis on such things as children services and schools in areas of high poverty. What Begala explains is that these moves will be hard to make without first confronting the SAL, that is, the restrictions it places on state spending.
Thus, with the stakes so high, it seems worth amplifying what the SAL involves. Recall the 2006 race for governor, Ken Blackwell pitching a proposed constitutional amendment to limit state spending. Statehouse Republicans made an accommodation. They enacted a law that echoed the concept, limiting annual general revenue fund spending growth to 3.5 percent or the sum of inflation plus population growth, whichever is greater.
They permitted exceptions, when the governor declares an emergency and at least three-fifths of lawmakers approve. They also required a recasting of the SAL every four years, a step to prevent the buildup of unused appropriation capacity or the potential for large spending increases in some years.
That is where the state now stands, 2019 a year for recasting as the Statehouse prepares the new two-year state budget. What’s telling is that the recasting is based on the actual appropriation level for the previous year. Guess what? Current appropriations are running below the level allowed by the SAL, at $22.9 billion compared to $24 billion. (The SAL exempts federal money and appropriations for tax relief.)
So, as Begala points out, the SAL for the new fiscal year will be lower than the previous year. He further calculates the gap between projected revenue growth and the spending limitation for the next biennium, revenues exceeding the SAL by $388 million to $505 million in the first year, and $40 million to $282 million in the second. Those are significant amounts, funds that could go to the likes of cities and counties, public schools and public works.
Begala notes that the SAL helps explain how the state’s rainy day fund has climbed to $2.7 billion. Yet the fund is nearly at its maximum level as a percentage of general revenue spending. What happens when it gets there? The excess revenue returns to taxpayers in a form of tax cuts.
Is that the direction Ohio wants to take in view of its many needs and the assorted tax cuts of recent years?
The governor and state lawmakers have options. They could change the SAL through legislation, or repeal the limitation.
What Begala highlights is that the SAL ran into something unanticipated at the start, the Great Recession and its devastating effect on appropriations. For instance, in 2010, appropriations ran $4.4 billion below the limit, and a year later, the amount was $3.8 billion below. As a result, when recasting the SAL for the 2012 fiscal year, these appropriation levels had a distorting effect, the SAL much more severe in its restrictions.
Begala stresses that this setback has rippled through the decade, the state yet to catch up or reset to account for the calamitous shortfall. That could be the responsible course for the new governor and legislature. They could make adjustments to compensate for the damage done in the recession.
In doing so, they would address what amounts to a structural deficit, the state spending less than its needs require, not to mention less than the revenue it raises. When the SAL became law, many warned about such problems, and that was without anticipating the recession. At the time, the thinking was that lawmakers could make repairs if the idea proved a mistake.
Well, that moment has arrived if Ohio wants to start recovering from its decade of disinvestment.
Douglas is the Beacon Journal/Oho.com editorial page editor. He can be reached at 330-996-3514 or email@example.com.