Study: Local Governments’ Spending Cut Rhetoric Fails to Match Reality

Published September 16, 2014

During the political “silly season,” it is common to hear hyperbolic rhetoric. Ohio is no different, with a multitude of local government officials pointing their fingers at state officials, claiming injuries against local governments.

Local officials claim that the governor and General Assembly decided to balance the state budget at the expense of local governments, by reducing the amount of revenue local governments share with the state.

This has resulted in charges of “draconian” cuts being made in local services. However, this rhetoric is overheated, ignoring much of the reality on the ground.

A new Buckeye Institute report shows that, despite reductions to the Local Government Fund allocations, the elimination of the death tax, and other cuts to local revenue sharing, many of Ohio’s counties and municipalities have large unallocated end-of-year general revenue — essentially, “rainy day” funds.

Sunny Days

Additionally, most of them are also enjoying increasing general revenues from municipal income and county sales taxes. Economic growth, sparked in part by the very tax cuts they decry, has aided in putting Ohioans back to work and paying taxes.

In the aggregate, counties had over $976 million in unassigned general revenue balances in 2012. Eighty of Ohio’s 88 counties have surpluses exceeding 5 percent, the mandated level that the State of Ohio must maintain. 225 cities and nearly 600 villages, have the same level of reserves, with a cumulative balance of nearly $1.8 billion.

Between 2011 and 2012, the total amount of municipal income tax revenue generated by the 601 municipalities that have such taxes, increased by over 5 percent, or nearly $230 million. Counties also saw their sales tax collections increase in 2013 from 2012 by around 5 percent, or over $80 million. 

While these results are not universal, as some townships were negatively impacted, the sunny financial forecast is widespread. It is important to point out that the Local Government Fund — even before any of the recent reductions — amounted to less than 5 cents of every dollar in shared revenue, contributing slightly more than one cent of every dollar to total local revenues.

Throwing Money at Problems

Ultimately, feeding the beast of local government more is not a solution to Ohio’s long-term economic challenges. They should raise what money they need locally. keeping decision-making closer to the taxpayers residing in their jurisdictions.

Simply throwing more money at local governments, through state revenue sharing, encourages a return to stymied economic growth, caused by the web of dysfunctional policies that has dominated Ohio for decades. Not coincidentally, over the past 50 years Ohio has systematically slipped behind southern and western states, in both job and population growth.

Fundamental tax reform at all levels of government, the facilitation of shared services across political jurisdictions, labor reform, and an embrace of real free-market principles are essential to enhancing Ohio’s slower-than-necessary recovery.

This will not happen until local officials become full partners in improving the vibrancy of the state economy instead of seeking more revenue sharing money from Columbus.

Greg Lawson ([email protected]) is Statehouse Liaison and Policy Analyst for the Buckeye Institute for Public Policy Solutions, based in Columbus, Ohio.

Internet Info:

“Revenue Sharing Reform: On the Road to Ohio’s Recovery,” Greg Lawson, Buckeye Institute for Public Policy Solutions: