Topics discussed included:
- What Ohio's budget is, how it is crafted and the partnerships it represents.
- How the state budget process impacts policy and politics.
- The work that goes into preparing the operating budget bill.
- The biggest challenges with the legislative side of the budget process.
- What accounts for the ongoing strength of Ohio's revenue and the stability of the state's budget.
- The difference between the DeWine administration's budget system vs. the previous administration's.
Welcome everyone to another episode of our ongoing Calfee NOW series. I'm Maryellen Corbett in our Columbus office in the government relations group. As many of you may know, the DeWine administration has unveiled the executive budget proposal for the fiscal years 2022 and 2023 date biennial operating budget bill. Per the Office of Budget and Management, Ohio's budget is the biennial spending plan for the Ohio state government and represents a statement of priorities for a two-year period. The budget, in many ways, sets the tone for the next two years of the state operations and will consume at least five months of legislative focus. It's important to understand what the budget is and how it impacts policy and politics. Not only for people with specific issues in the budget, but for anyone pursuing any legislation in Ohio during the session.
As such, I'm thrilled that we have with us today, Dr. Greg Browning, the former director of the Ohio Office of Budget and Management and senior policy advisor to former governor George Voinovich, where he was responsible for leading the development of the state's budgets. Since leading government service, Greg has been the president of Capitol Partners, a consulting firm, where he is focused on providing client policy strategy and leadership advisory services. I asked Greg here today to talk a little bit about what Ohio's budget is and how it is crafted so that you can have a grounding in the policy and politics of the budgeting process as you assess where your budget priorities might fit into the larger context of $171 billion plus budget.
So just so we have some background, I wanted to give you a couple of highlights of the proposal that the governor introduced earlier this week by the numbers. So, as I said, it's 171.2 billion in all funds spending over the biennium with 74.6 billion in GRF spending. By comparison just a decade ago, GRF spending was at $55.7 billion. So that's a $20 billion growth in just 10 years. About 68.5% of all funds spending is in health and human services and K through 12 and higher education. And 41% of that is Medicaid alone. And in the GRF, those same categories account for 76%, with 45% K through 12 and higher education. Lot of money in a lot of different places.
So Greg, as we were preparing for this discussion, one of the things we talked about is defining for folks what the budget is. I think your average Ohioan would think the state sets all the spending priorities and directs operations, but what those figures I just rattled off really highlight is how little control the state government actually has. Can you talk for a bit about what the budget actually is? Why I made a point of distinguishing between all funds in GRF, and the partnerships that the budget actually represents.
I'm happy to do it. Good to be with you. I just give you a quick kind of profile and snapshot of the state budget to build on what you've said. The budget is kind of a symbol of the fact that, something you just referenced, that the state is largely a financial conduit. Ohioans pay taxes, sales tax, income taxes, business taxes, et cetera. They go into the state. Most of them into the GRF, which is the general revenue fund. That's the biggest single fund within state government, but there are hundreds of funds and you add them all up and then you get to your $171 billion number over two years. But the general revenue fund gets the lion's share of the focus in any state budget, because it's the biggest fund, where the big action is.
And you say, well, what are we doing with that money? What do we spend it on? Well, we spend it on three big categories of expense: primary and secondary education, higher education, and a state federal health care program called Medicaid, where about one out of four Ohioans receive health care through Medicaid. So it's a hugely significant issue for the state and its citizens and for state government itself of course. So money is flowing through the governor.
I remember when George Voinovich came back as governor and he had been the mayor of Cleveland and he knew this, but I reminded him, that if you're the mayor of Cleveland or some other town, you get the money and you spend money. You hire police, fire, et cetera, fill potholes. If you're a governor, that's not how it works. It goes out to organizations and institutions that are really not managed by the governor. Schools are managed locally. We have institutions of higher education that are pretty autonomous, and we have tens of thousands of people providing healthcare services paid for by Medicaid, but they are not government employees. So just something to keep in mind as you think about the budget in terms of its organization and structure. So really you end up with 70% or so on those three items. Then you've got property tax relief and most citizens really may not know that they actually have part of their residential property tax bill paid for by the state and you have debt service, and then you have general government. And general government's pretty small financially. So a quick overview.
Excellent. Yeah, so it really does sort of highlight how the state works with our local levels of government, but also our federal government. And as you said, it's only about 10% that is what people think of as the state government, the different agencies and boards and commissions and departments. So despite much of the budget being determined by forces out of the state's control, there is a lot of work that goes into preparing the operating budget bill and as the person who was responsible for it for eight years, can you provide us with some insight on what type of process typically entails? when does work on the budget start and how does OBM and the administration arrive at the figures and policies that we see in an executive budget proposal?
Well, as you might imagine, it's a long journey, and it starts really about a year out. In the beginning of the year before you're going to have a new biennial budget, you start working on that new biennial budget. Biennium starts on July one. We have a fiscal year that runs from July one to June 30th. So two of those years. So this budget that was just introduced this week will go into effect on July 1st. They started working on it closer to July 1st of last year, spend about six months or so working on it, doing outreach to the agencies, giving them guidance on how to build the budget, what assumptions to use and kind of conceptual direction, if you will, in addition to all the detail of procedurally how to provide information and build a budget. So that's kind of the timeframe.
One of the biggest challenges in any budget of course, is revenue estimating. You have to do revenue estimates really about 30 months out from the end of the biennium that you're doing revenue estimates for, which even if you feel really good at your abilities, I can tell you, you need some luck. And more than luck, you also need assistance from professionals. So the state reaches out to get professional advice on revenue estimating. There's also a volunteer group of people who are still coming together, economists, business leaders and others with expertise and economic analysis to help you do the economic forecasting that the revenue estimates are built upon. And again, even with all of that, it's tricky business to do a two-year budget. And some would argue, well, we ought to do one year budgets because it would be easier to estimate. There'd be other reasons for that.
But we have stuck with two year budgets and so far so good. Always bumps in the road, but that process of building a budget, both on the revenue side and of course the expenditure side, what are the governor's top priorities? How should those priorities be reflected in the budget recommendations of individual agencies? And of course the governor's office usually, and the budget office, don't leave that to chance. They work with agency directors and staff to talk about what the priorities should be, how much progress can be made on them, what revenues or finances are in place that allow for progress, a little, a lot? And so there's a multi-dimensional, multi-layer process of building a budget. And it is absolutely a team effort and not just taking place in a corner with the governor and his budget director.
Right. So that's a little bit about the development in the executive side of it, but there's also the legislative side. So Calfee works with clients that are active in a lot of states, and they're frequently really surprised by how active our legislature is in the budget process. In these states, it's more of a sign off from the legislature. But we're in for about five months of hearings on this bill, in your experience, both in and out of government and following introduction, what are some of the biggest challenges or sticking points in a typical budget? And are there any funding areas that typically get particular scrutiny by the legislature?
Well, a couple of things. First of all, governors tend to have some advantages when you go forward, you put together a state budget, thousands of pages of legislation and in the form of a proposed state operating budget. And you've got all the status quo, it's the power of the status quo. Are we going to stop funding primary and secondary education in any significant way or dramatically double the size or big increases? Are we going to do that with any of our essential public services? Generally, the answer is no. And generally both the general public and various [inaudible 00:11:53] interests are pretty much for that answer. They want stability. They want the status quo. They want continuity, hopefully with some improvements, but in an environment like the one we're in and in a recession, my hunch is that the budget that was just introduced, which is largely a budget about continuity and stability, will get a response of kind of a sigh of relief. That oh my gosh, it could have been worse. We're in a recession and we got what we got last year, maybe a little more, that's a relative win.
So the governor has some advantages on the executive side, but you can turn to the state constitution and ask, well, who's in control of spending and taxing? It is not the governor. It's the general assembly, and the general assembly has wide powers. So it's their budget, it's their money. It only becomes the governor's money after the budget is passed. I learned that working in the legislature, but former speaker named Vernal Riffe, who would be quickly reminding us in case we got confused or forgot it's their money. So it is a process that is reflective of the three pieces of government coming together. And this particularly, of course the governor and the legislature, it requires negotiation and compromise. The governor will not, well maybe centrally get his way, but it's not so much that the governor as it is what I just said about the status quo, about essential services and ongoing funding.
And so that one person I talked to asked me about this and I walked her through it all. And then she said, "So what you're saying is, it's hard to change the pie chart of state spending." And I said, well yeah. That's one way to look at it. And it is tough to change it, which is both the good news and the bad news. So I can keep going, but that's kind of the heart of the process. It begins in the House. You've got about six or eight weeks in the House. It moves to the Senate. And then it moves to a conference committee in June where the differences between the House and the Senate are sorted out. And again, more compromise, more negotiations. And usually the big issues remain the big issues. So while there are always some contentious side issues that materialize, the central questions of what are we doing for healthcare, education, higher education, those are the where the big issues usually lie.
Right. And hopefully we're done by June 30th. Though of course, last time we weren't. It moved into July.
Right. It's not automatic. And again, consistent with this process of negotiation, it's not automatic.
Right. Speaking of recession, which is in part due to the COVID pandemic, which is obviously been a destabilizing force on so many aspects of our lives over the past year, including the budgets of many state governments, but even in the midst of a pandemic, Ohio's budget has remained much more stable and intact than many other states around the country where huge deficits are looming. What do you think accounts for the relative ongoing strength of Ohio's revenues and the relative stability of our budget?
I don't have all the answers there. My sense is first of all, it is unbelievable in some ways that what you just said is true.
We've got an ongoing recession. It's not over, ongoing pandemic, not over big, big problems with many businesses. And yet we're making revenue estimates that were put together in June of 2019 before anyone could spell COVID. Wow, unbelievable. How did this happen? And I think some of the answers that come to mind are, first of all, we went into it reasonably stable in terms of our state budget. We have a history of being responsibly conservative, and I don't mean that in a philosophical or a partisan sense, just we are responsible, kind of Midwest history of budgeting. And we have to have a balanced budget per our state constitution. And so that helps certainly.
Trillions of dollars from the federal government, unprecedented, historic infusion of capital into the national economy. Definitely been helpful and continues to be, and it is likely we'll get another round. So all of those things matter. I also think it matters that this recession has been particularly difficult for working people with average to below average incomes have been hit particularly hard, and many who are more solidly middle-class and above have not been hit as hard, have maybe gone home and continued working and continuing to get paid. They pay the lion's share of the taxes. So again, that dynamic is protective to state revenues and state fiscal affairs. So between all of that, I think you have an important part of the answer, but not the whole answer.
Yeah. It's amazing we've done this without touching the rainy day fund yet at all.
[inaudible 00:17:51] Right. And I think even the administration thought that they would have to use the state savings account that has, I think, $2.7 billion in it as a fiscal shock absorber, if you will. But that's not been necessary, but again, if the federal money hadn't come, I think that would definitely have been necessary. And including the huge expense of Medicaid, the federal government has increased the federal match by, I think, 6.2 percentage points. And when you have a multi-billion dollar program, it's big money.
Yeah. That certainly helped. So this is my eighth executive budget proposal, ninth budget, but eighth executive budget proposal. And you've certainly seen more than I have at this point in your career, but I'm sure you agree that each administration has their own spin on how they approach the budget. How would you characterize the DeWine administration's budget system to previous administrations?
Well, I think what's not different is this feeling that, and I think particularly in a recession in difficult times, that the most important thing you can do if you're funding state services, and you regard as essential public services is to maintain continuity and stability in the provision of those services. And again, education, higher education and healthcare, Medicaid, are at the top of the list and the lion's share of the list. So that's the primary focus I think that you see in this new budget. And again, people breathing a sigh of relief over that, not just at the state level, but also with a broader array of public entities in Ohio, including local governments, of course, and higher education institutions. So lots of stability, I think moving around money, carrying forward money to put together a billion dollar proposal will be investigated and reviewed and likely changed in some degree. It'd be shocking to think it went through. And I don't say that because it should be, I'm just saying the process tends to lend itself to movement and negotiation within big gubernatorial priorities like that. So I see that happening.
I think you haven't seen the assumptions that the budget is built upon in terms of the revenue estimates. I think there'll be a careful review of that. The legislative service commission, legislative budget office will do their own version of those estimates. There's a history of the Office of Budget and Management and the legislative budget office, comparing notes, being somewhat different and having compromise, split the difference, whatever. So I think you'll see that. So it's about the fundamentals and they'll also be issues raised about ongoing questions about how we manage the pandemic going forward, there's more money for public health in it, for instance. And I think all of these things will get careful review.
Yeah, I think the biggest difference that I noticed from this administration to the prior administration is just in how governors approach the budgeting process. Governor Kasich who was used to the federal budgeting process and wanting to do those annual MBRs that we had for so many years, it's sort of nice to get back to the more traditional two year budgeting process under the governor.
Yeah. I haven't seen any push to change that process. So I think it will continue.
Well, Greg, I want to thank you so much for joining me today. The budget is such a huge part of the Ohio biennial session, and it really does as Leah likes to say, suck up all the oxygen in the room for the next five months. It's really difficult for anybody to get any attention on anything else. And so for our viewers as you're pursuing things in Ohio over the next five months, just really sort of keep that in mind. And as you're looking at the budget itself, remember that your little piece of the budget is a very, likely very small piece of a really large picture. It's been a pleasure to talk to you. You know how important you are to my being here in Ohio and being a part of the Calfee team and working on budget issues. So thank you so much Greg.
Thank you. I'm happy to do it.
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