2018-19 Budget Review: Replacing the Medicare Managed Care Organization (MCO) Tax

By Jason Warner, GOPC Manager of Government Affairs This is the first in a series of articles taking a closer look as specific items contained in the Governor’s proposed budget for FY2018-19, which the legislature must pass by June 30, 2017.

Last year, the Center for Medicare and Medicaid Services (CMS) issued a ruling that stated that after July 1, 2017, Ohio’s sales tax on Medicaid Managed Care Organizations (MCO’s) would no longer be a permissible source for state funds to draw down federal matching dollars for Medicaid. This represents a significant challenge for both the state, but also local governments and transit authorities which rely on sales tax receipts to support a wide range of services.

The Governor’s proposed budget would replace the MCO sales tax with a new Health Insuring Corporation (HIC) assessment which is similar to a plan that was instituted in California and was approved by CMS last year.

While this new assessment will assist the state in continuing to draw down federal Medicaid matching funds, it is not a sales tax. As a result, local governments and transit authorities will not have any local revenue generated as a result of the new HIC assessment.

House Bill 49 proposes a transitional aid fund for local governments and transit authorities to be paid out in a single lump sum in October of 2017. All 88 counties and eight transit authorities will receive a calculated 4^th Quarter 2017 replacement aid amount based on what they would have received in revenue for that three month period. In addition, the transit authorities and 80 counties are to receive an amount based on the size of their sales tax revenue the Medicaid tax collections were, and how their overall sales tax collections compare to the state average. The remaining eight counties will not receive a payment from this calculation because the receipts from the tax represented too small a proportion of the overall revenue derived from the sales tax. (Those eight counties are Delaware, Erie, Geauga, Hancock, Holmes, Medina, Union and Warren counties.)

In total, the state will appropriate nearly $207 million to these local government entities as a part of the transition away from the MCO sales tax. However, in testimony to the House Finance Committee, Office of Budget and Management Director Tim Keen stated that the administration did not believe that long-term or permanent replacement of the revenue was in order as the MCO sales tax had only existed since 2010.

The full list of proposed transitional aid amounts can be found here.

Visit GOPC’s Transportation Modernization page to learn more about this important issue area

GOPC Testifies on Transportation Budget in House Subcommittee

Recently, Greater Ohio’s Manager of Government Affairs, Jason Warner, had the opportunity to testify before the House Finance Subcommittee on Transportation regarding House Bill 26, the state transportation budget for FY2018-2019. The subcommittee held hearings throughout the week on the proposed budget, which provides appropriations for programs funded with motor vehicle fuel taxes and registration fees (primarily in the Departments of Transportation and Public Safety. GOPC full testimony is below and can also be found in PDF format here. You may also review all the testimony which the subcommittee heard on the committee’s website.

House Finance – Transportation Subcommittee House Bill 26: State Transportation Budget | Interested Party Testimony Jason Warner, Greater Ohio Policy Center February 9, 2017

Chairman McColley, Ranking Member Reece and members of the Transportation Subcommittee, I want to thank you for providing me this opportunity to speak to you today about transportation in Ohio and the state’s transportation budget for FY2018-19.

My name is Jason Warner and I am the Manager of Government Affairs at the Greater Ohio Policy Center. Greater Ohio is a nonprofit nonpartisan organization that is valued for its data-driven research. Our mission is to champion revitalization in Ohio to create economically competitive communities.

As I am sure you are aware, Ohio is a cornerstone of our nation’s transportation infrastructure. I would like to focus my testimony today on what Greater Ohio sees as a policy platform to support a robust, competitive transportation system that will continue to keep Ohio at the forefront of meeting the increasing demands for a 21st Century transportation system for a 21st Century economy. We do not consider these to be aspirational goals, but rather a blueprint and effective strategic plan.

I would like to begin my remarks today with an overview of public transportation in Ohio. Ohio boasts a strong and productive public transportation network, which includes 28 urban and 33 rural systems. ODOT data shows that over 115.1 million passenger trips were provided by the state’s transit systems in 2013, the most recent year statistics are available.

Yet, 27 counties in Ohio feature no form of public transportation (either fixed route or on-demand service) and the state spends only 63 cents per capita for public transit. That is why Ohio ranked 38th in the nation in terms of state investment in public transportation, below North Dakota. It’s worth noting, that among Ohio’s neighboring states, the state ranks ahead of only Kentucky:

• Pennsylvania – 9th ($85.55 per capita) 
• Michigan – 15th ($24.33 per capita) 
• Indiana – 19th ($8.57 per capita) 
• West Virginia – 32nd ($1.50 per capita) 
• Ohio – 38th ($0.63 per capita) 
• Kentucky – 42nd ($0.34 per capita) 

Only 2% of ODOT’s budget is dedicated to public transportation, which is why the department’s own 2014 Transit Needs Study found that current service does not meet demand. Ohio’s peer states dedicate between 10-20% of their state transportation budgets to transit and the state needs to do much to make up for this deficiency. Public transportation is critical to a number of sectors in Ohio, including the elderly, disabled, and is a key component in successfully supporting the state’s priority of job creation, job growth, and workforce development.

We thank Director Wray for his leadership on this issue. Through his efforts and those of the team at the Ohio Department of Transportation, the governor’s budget proposed a substantial increase in funding for public transportation over the next two years. However, as the ODOT Transit Needs Study acknowledged, the backlog of capital needs is great and will require substantial support. There are several ways to address that gap.

Increase Federal Highway Administration Funding for Public Transportation

One option, which involves a simple reprioritization of goals and projects at the Department of Transportation is the idea of flexing Federal Highway Administration (FHWA) dollars.

Flexing FHWA dollars reallocated federal funding Ohio already receives. At present, the state flexes around $23 million per year for public transportation purposes. House Bill 26 proposes to increase this amount by $10 million per year, to $33 million annually. This is a significant increase in funding and we applaud the move by the administration to increase this support, which will help support the purchase of new rural transit vans and full sized buses.

Greater Ohio Policy Center believes that this support would be greatly enhanced with a commitment by the legislature and Department of Transportation to flex an additional $17 million annually, boosting the total amount of flexed FHWA dollars to $50 million per year of the biennium. Doing so will not adversely impact ODOT and its primary mission, as outlined recently by Director Wray in his testimony to the House Finance Committee, which is to “to take care of what we have.”

Setting aside a total of $50 million in FHWA funding to public transit will result in 7.5 fewer miles of highway expansion, or 24 miles of highway repaired per year. For perspective, ODOT paved 5,564 lane miles in 2015.

Allocating $50 million per year of FHWA fund to transit-related capital investments will have negligible impact on Ohio’s crucial highway maintenance and construction programs, while significantly improving safety, performance, and use of Ohio’s public transportation systems.

Create a Dedicated Funding Stream for Public Transportation

Flexing FHWA funding is just one option Ohio has to support Ohio’s public transportation network. Another option, which will require action on the part of the legislature, is to create a dedicated funding stream for public transportation.

Nationwide, 25 states along with the District of Columbia dedicate fees and taxes for the exclusive use of public transit. This, in turn, provides a relatively reliable source of assured funding for these systems. While local transit systems can seek support for dedicated sales tax funding from local voters, it is still not sufficient to meet all needs, and thus most systems rely on funding from the state.

There are several possible sources Ohio could dedicate to support transit-related equipment and vehicle investments; examples of potential funding sources include. At Greater Ohio, we believe Ohio should consider dedicated funding derived from the sales tax collected on rental vehicles, a revenue source that is largely paid by out-of-state visitors to Ohio. By dispersing the equivalent amount of sales tax collected on rental vehicles to fund public transportation, Ohio would take a major step forward in assisting Ohio’s existing transit systems modernize and expand to meet the growing demands for service statewide.

There are other options available beyond the rental vehicle sales tax, including a tax on motor vehicle sales or a fee on the sale of new tires, among others. Regardless of the source, dedicated funding is an important and necessary step forward if Ohio is to have a modern, competitive system.

Dedicated funding for capital improvements will increase the safety and reach of Ohio’s transit agencies. In addition, dedicated funding will help to expand Ohio’s existing transit services, including helping to reach residents in the 27 mostly rural counties that lack access to any form of public transportation.

Adopt and Implement a Statewide Active Transportation Policy

Public transportation is just one aspect of a robust transportation network which Ohioans have come to expect and rely upon. But as we near the beginning of the third decade of the 21st Century, we must look beyond four wheeled transportation as being the sole aspect of the transportation network. Every day in Ohio, 2 pedestrians and 1 bicyclist dies or is seriously injured in roadway accidents.

Nationally, elderly people and children are at greater risk of pedestrian fatalities than other age groups. A 2015 analysis of 37 active transportation projects across the country determined the projects avoided a total of $18.1 million in collision and injury costs in one year alone. An active transportation policy that ensures state roadways and municipal streets that receive ODOT investment can be safely traveled by all users’ needs to be implemented.

Active transportation, by definition any human-powered transportation system such as walking or bicycling, is increasing in frequency across the state for a variety of reasons. Adoption of a policy that would be sensitive to context (rural vs. suburban vs. urban) and that would facilitate the safe and efficient movement of people and goods is key. At present, 33 states have an active transportation policy. Agencies such as ODOT and the Ohio Department of Health have been working on a policy for some time. I recently had the opportunity to share this plea with both the Joint Task Force on Transportation Issues and the Joint Education Oversight Committee, as part of its review of school transportation issues, and share it with you now in the hope that this committee will urge the department to pursue this policy on a statewide basis and ensure safe travel for all Ohioans.

Comprehensive Funding Reform of the ODOT Budget

As I have previously mentioned, Ohio is a key component in our national transportation network. Ohio’s interstate highway system is the 12th largest in the nation, and ranks 5th in overall traffic volume and 4th in truck traffic volume. Ohio boasts the 2nd largest inventory of bridges in the nation. Beyond roadways, Ohio also ranks 4th nationally in freight rail mileage, hosting 35 freight railroads and 5,305 miles of rail. Ohio’s maritime ports saw 48,267,276 short tons of cargo traded in 2013, and features 7 ports ranked in the top 100 nationally that year.

Yet, in spite of these impressive statistics, the American Society of Civil Engineers has graded Ohio’s 125,000 plus miles of roads a ‘D’, finding that 43% of the state’s roadways are in critical, poor, or fair condition. Of greater concern is a finding that 2,242 of the state’s 27,015 bridges (8% of total bridges), are ‘structurally deficient.’ The overall cost to motorists in the state, the personal cost of driving on roads in need of repair, is $3.3 billion per year, which amounts to $413 per motorist.

Adequately maintaining and upgrading all modes of transportation in Ohio is becoming a challenge, as there are not enough resources available to ensure this is done effectively. The cost of transportation materials and equipment has increased substantially in the last decade, while local, state and federal funds have flat-lined. This is not a problem that is unique to Ohio, and ODOT should be lauded for the work it has been able to accomplish in light of these challenges.

That said, Ohio needs to take a serious look at these challenges going forward, and can look close by to see an effective model that is meeting the needs of the public and private sector in a strategic manner.

In 2012, Pennsylvania had been found to have the most dire of infrastructure systems in the nation; the bridges were rated as the most structurally deficient, roadways were crumbling and there was a growing, unmet demand for public transportation. Through a comprehensive 5-year transportation budget package enacted in 2013, Pennsylvania is now producing $2.1 billion in additional funds and recalibrating resources to better support all modes of transportation. The state has now adopted a Fix-It-First Policy that focuses on funding repairs and maintenance programs on existing infrastructure, doing more to improve asset management and limiting capital expansions.

Like Ohio, Pennsylvania restricts its motor fuels tax to highways and bridges, so in order to provide for the needs of additional transportation modes like transit, rail, aviation, and maritime ports, the state instituted new fees and aggregates small increases on existing taxes and fees to provide additional funding to expand transit services, modernize ports and airports and generate additional revenue for traditional maintenance programs. Among these revenue generators were:

• A new $1 fee on all new tires sold 
• A higher fine for lapsed vehicle insurance in lieu of license suspension 
• A flat $150 fine for disobeying traffic control devices 
• A $2 per day vehicle rental fee 
• A 3% vehicle lease tax 
• A clear formula for assessing the gas tax on alternative fuel vehicles 
• A switch from taxing at the pump to taxing “at the rack”

One of these elements is already included in House Bill 26. A provision in the bill moves the point at which the motor fuel tax is applied from the point when the fuel is received to, generally, the terminal or refinery rack, affecting who is required to report and pay the tax.

GOPC believes that other elements of the Pennsylvania reform package can and should be considered in Ohio, in order to ensure the state’s economic stability in the years ahead.

Conclusion

In conclusion, it is crucial that Ohio support and maintain a system supporting all modes of transportation. Such a robust, competitive system as outlined here today can serve as a blueprint for addressing our state’s critical infrastructure needs while simultaneously enhancing Ohio as a place where businesses can thrive and where people want to live.

Chairman McColley and members of the Transportation Subcommittee, thank you for your time and thoughtful consideration. I am happy to answer any questions you may have.

Build in Akron: Opportunities for Residential Reinvestment in Akron's Neighborhoods

GOPC report details opportunities for market-rate residential investment in Akron’s neighborhoods

The Build in Akronreport, produced with the support of the John S. and James L. Knight Foundation, finds that many of Akron’s neighborhoods can already support additional market-rate housing and many more could attract new development through strategic interventions that have been employed successfully in other cities in Ohio.

Go Here to read the Report

Build in Akron features a market analysis by DiSalvo Development Advisors that categorizes Akron’s neighborhoods by the kinds of interventions necessary to bolster the housing market. The analysis categorizes neighborhoods into four groups, which are displayed on aninteractive map available here. The report found that all neighborhood types have opportunities for regrowth but are at different stages in the market-building process.

Based on interviews with local homebuilders and research about strategies used successfully in similar cities in Ohio, the report also outlines a series of interventions the City of Akron and other stakeholders can use to create the conditions for additional development. These strategies are customized for and targeted to the four neighborhood types and are illustrated with examples of other cities in Ohio that have used them successfully. The strategies are:

• Concentrate on rebuilding the downtown rental market. A strong downtown rental market not only draws new residents who are looking for urban living options, but creates a pipeline of potential buyers throughout Akron’s neighborhoods.
• Create additional mixed-use districts to broaden the appeal of urban living. Newer mixed-use developments in Akron have shown that there is pent-up demand for market-rate housing in a dense, urban environment. Mixed-use districts can encourage additional developers to follow suit in investing in a neighborhood.
• Creatively address the challenges of lower appraised values. As also reported in the City of Akron’s Planning to Grow Akron report, low home values discourage market-rate developers from building in the city. Other cities in Ohio, particularly Youngstown and Cleveland, have found creative ways to strategically address this challenge.
• Strategically deploy incentives like tax abatements. All similarly-sized cities in Ohio make residential tax abatements available, at least in certain neighborhoods. Research shows that this tool could help boost additional investment in Akron as well, but is unlikely to rebuild market strength without complementary strategies.
• Find mutual interest with hospitals and health systems in neighborhoods. Hospitals and health systems in Ohio and beyond have a growing interest in promoting strong, healthy neighborhoods through investments in housing and community development.
• Encourage market-rate and affordable development by community development corporations (CDCs). CDCs have proven to be important, on-the-ground partners for market-rate developers in other Ohio cities. Building the capacity of existing CDCs and supporting the growth of new ones could create opportunities for catalytic investment.
• Leverage the real-estate development abilities of public or quasi-public agencies. Land banks and port authorities have legal tools and access to funding sources that make them valuable potential partners for residential investment.

House Finance Committee begins work on State Budgets

By Jason Warner, GOPC Manager of Government Affairs The first month of the 132^nd Ohio General Assembly began slowly, with mostly organizational work going on behind the scenes while new members acquainted themselves with life as a member of the state legislature. That quiet period has now come to an end, as the House Finance Committee has taken up the task of passing the next state operating budget for the next two years.

The state operates with four state budget bills: the Main Operating Budget, the State Transportation Budget, the Bureau of Workers Compensation Budget (BWC) and the Industrial Commission Budget (IC). The BWC and IC budgets are passed separately from the main operating because they are supported through the fees that businesses pay in the state. Those fees provide the operational funds for those organizations and must be passed separately as they do not use general revenue funds (GRF) for operations.

Like the BWC and IC budgets, the State Transportation Budget is funded through a combination of federal funding and revenues derived from the state motor fuel tax. The Ohio Department of Transportation and other agencies funded with state motor fuel tax revenues also receive funding in the main operating budget from the GRF, but the State Transportation Budget deals exclusively with the disbursement of funding from federal transportation dollars and motor fuel tax proceeds. 

On February 1, the House Finance Committee began hearings on the main operating budget, which concerns the funding of general government operations for the next two years. A day later, on February 2, the committee began hearings on the State Transportation Budget. Both budgets must be passed within the next 5 months so they can take effect on July 1, when the next state fiscal year (FY2018) begins (though it is worth noting that, due to a ruling of the Ohio Supreme Court, the transportation budget must have a 90 day effective date, requiring it to be passed by April 1).

Governor John Kasich introduced his proposed budget to the state legislature on January 30. The governor’s budget proposal recommends total GRF (Main Operating Budget) spending of $33.10 billion in FY2018 and $33.82 billion in FY2019. In total, the two year operating budget calls for total appropriations worth $66.92 billion. The proposed Transportation Budget calls for spending $3.96 billion in FY2018 and $3.85 billion in FY2019. This actually represents a reduction in overall spending compared to the past two years, where the transportation budgets appropriated $4.01 billion in FY2016 and FY2017.

Beyond spending, the budget also serves as a catalyst for a number of state law and policy changes, and Governor Kasich has proposed a number of initiatives through this budget proposal. Among these changes are further proposed tax cuts, with a proposal to simultaneously cut taxes across the board and reduce the number of tax brackets from 9 to 5; a freeze on public college and university tuition rates, along with a proposal that universities provide text books to students (while charging up to $300 to offset costs); improving state government through technology, including moving 100 percent of state computers to cloud computing.

On the transportation side, the proposed budget seeks to create ‘smart highways’ along existing state highways (I-270 in Columbus and I-90 near Cleveland), seeks to provide the Director of the Department of Transportation with the authority to enact variable speed limits and ‘hard shoulder running’ along highways during peak rush hours, and appropriates $45 million for expanding research capabilities at the Transportation Research Center in East Liberty to further foster research and development of autonomous vehicles and smart highway technology.

The majority of the proposed spending in the transportation budget is dedicated to maintenance on Ohio’s more than 43,000 lane miles of highway and 14,000 bridges, but does also include a proposed increase in federal ‘flex funding’ for public transportation, appropriating an additional $10 million per year towards a grant program which will assist local transit agencies in replacing their aging fleet of vehicles.

Over the next several weeks, the various subcommittees of the House Finance Committee will begin hearings on the hundreds of provisions and line items contained in the state budget and begin the process of crafting their own version of the bill, using the governor’s proposal as a framework. The House is expected to pass its version of the transportation budget by the end of February, sending it over to the Senate where it will be completed by the end of March before being sent to Governor Kasich for his approval. The Main Operating Budget will likely see passage in the House near the end of April, while the Senate will look to pass a version of the bill by mid-June. Final passage of the 2018-19 state budget is expected to occur in late June to take effect on July 1, 2017.

Miss the Webinar? Watch Preserving Our Neighborhoods: An Educational Webinar on Ohio’s Recently Passed HB463

Thank you to all panelists and attendees who participated in GOPC's Webinar, Preserving Our Neighborhoods: An Educational Webinar on Ohio’s Recently Passed HB463.

If you missed the Webinar, you can watch it in full here:

View the recording of the Webinar

PowerPoint Slides are available here

February 21, 2017

In January 2017, Governor Kasich signed HB463, a bill that contains new provisions that will help Ohio’s communities mitigate and prevent blight.

During the Webinar, panelists discussed new provisions enacted by HB463 and what they mean for neighborhood stabilization and economic development. Hosted by: Alison Goebel, Executive Director, Greater Ohio Policy Center Panelists: Jason Warner, Manager of Government Affairs, Greater Ohio Policy Center Adam Hewit, President, Government Solutions Group Robert Klein, Founder & Chairman, Community Blight Solutions Aaron Klein, former United States Treasury Department Deputy Assistant Secretary for Economic Policy Josh Harmon, Chief Environmental Specialist, Franklin County Municipal Court and President, Ohio Code Enforcement Officials Association                                                                    .