Taxes, Education + Unemployment May Top “Lame Duck” Session
2014 Election Review + What's Next for Ohio November 5, 2014
The last political ads of the season have thankfully run. Ballots were cast on November 4. And the 131st Ohio General Assembly is set to begin in January 2015 with many familiar faces returning and several new ones entering the freshman class. In addition, Ohio voters overwhelmingly picked Governor John Kasich and other statewide leaders to continue running our state government for another four years. But, before the 2015 swearing in ceremonies begin there is a significant amount of work the current House and Senate may finish before the final gavel places this legislative session in the history books forever.
One of the most significant state law proposals pending before the Ohio General Assembly is municipal tax reform. Ohio is one of only 10 states that tax both individuals and businesses. In addition, Ohio is the only state where each city/village makes its own rules and regulations related to municipal tax assessment and collection. On one hand, such flexibility has provided municipalities the ability to collect tax on transient workers that may not live in its boundaries. In addition, some argue that local control permits a softening of tax liability in bad years by utilizing a net operating loss carry forward mechanism. Others argue such flexibility in over 600 different sets of local tax ordinances adds to the complexity and cost of compliance for individuals and companies trying to expand or grow their business.
To resolve this friction among businesses and municipalities the Ohio House introduced HB 5 in January 2013. HB 5 seeks to provide more uniformity for administration and filing of municipal income taxes. The bill passed out of the House by a narrow margin in November 2013 by a vote of 56-39 and is currently pending in the Senate.
More than 33 statewide and regional business associations have been advocating for the passage of HB 5 under the Municipal Tax Reform Coalition. While fierce opposition has come from representatives of municipalities such as the Ohio Municipal League, other regional groups such as the Mid-Ohio Regional Planning Commission have been advocating for a finite number of reasonable reforms that reduce the negative impact on municipalities while advancing the goal of municipal tax uniformity. The question is not “if” HB 5 passes in the post-election session, it is what will be in the bill once it does pass.
Another tax issue that could resurface during lame duck session is Governor Kasich’s plan to increase the severance tax on fracking in Ohio. The severance tax is a tax imposed on the value of non-renewable natural resources that will be used outside the state from which they are extracted. The Governor has stated his intention to push harder post-election for his proposed 2.75 percent tax. In May, the Ohio House passed HB 375 by a vote of 55-38 that contains a 2.5 percent severance tax, but Governor Kasich is pushing for more. He has stated his intention is to use the revenue from the severance tax for local governments as well as additional tax reductions throughout the state. Whether in the lame duck session or early next year the severance tax issue will certainly be addressed in one way or another.
Amidst a slew of criticism over Ohio’s New Learning Standards over the summer the Ohio House introduced and began hearings on HB 597. The bill would repeal Ohio’s standards and replace them with three different sets of standards that would be assessed over the next four academic years.
These standards include the Common Core standards for Math and English Language Arts, and standards for Science and Social Studies developed by the Ohio Department of Education. The 2014-2015 academic year is the first year assessments will be given since the standards were implemented in 2010.
While there is a both support and opposition from House members, HB 597 was met with significant opposition from the Ohio Chamber of Commerce and local chambers across the state in support of the current Ohio New Learning Standards. Critics of repealing the current standards state the need for benchmarks on student advancement and competency as well as the ability to reduce the amount of remediation students need when pursuing post-secondary education.
The House Rules Committee recommended HB 597 for passage by a vote of 7-2 on November 5. Therefore, the full house could act on the bill as early as the week of November 10.
Ohio’s unemployment rate continued to drop in September, sinking to 5.6 percent – the lowest it has been since early 2008 – while the national unemployment rate was 5.9 percent. One benefit is that fewer claimants receiving unemployment benefits reduces the amount paid out of the unemployment compensation trust fund. Consequently, more people employed creates more UI tax revenue being paid into the fund. This is particularly important since the UI loan balance is the third highest in the nation at $1.379 billion. Since the economic downturn in 2007, Ohio has been forced to borrow these funds from the federal unemployment account to pay UI benefits.
The state has made significant progress in repaying the outstanding loan balance and picking up the interest tab so employers are not hit with an even higher balance to repay. But, federal law states that, until this loan balance is paid in full, Ohio employers will pay an additional $21 per employee each year to repay the loan. The minimum amount employers are required to pay in federal UI taxes is $42 per employee with no outstanding loan. Since the state has carried a loan balance for the last six years, employers are paying $105 per employee and face another $21 add-on in 2015.
HB 329, sponsored by Rep. Dave Hall (R-Millersburg), would require the director of budget and management to make payments on the balance of amounts borrowed by the state from the federal government. While this bill may see activity in the post-election session, many believe that a more comprehensive unemployment compensation reform package is needed to address the current loan balance and rebuild the UI trust fund to a position of strength to weather the next economic downturn. Earlier this year House Speaker Bill Batchelder created the Unemployment Compensation Debt Study Committee to hold hearings over the summer and provide its findings to the House during the post-election session.
What is Certain?
There are very few things in life that are certain. One thing we can be sure of during the post-election session – many important issues may be acted upon before the 130th General Assembly concludes its business (also known as “sine die”). Legislators, staffers and lobbyists alike all prepare for long days (and sometimes long evenings). But, we all know that the gavel will fall before December 31 at midnight and what doesn’t get acted upon before then will likely resurface in early 2015.