Greg R. Lawson commentary: Localities are doing fine without money passed along by state

The Columbus Dispatch (September 10, 2014)

Local government officials who persist in calling for inefficient government spending and redistributive policies risk becoming like Chicken Little, claiming that the sky is falling over every proposed spending cut to local governments. The nightmare scenarios that they continue to peddle are simply not supported by the data, and indeed many of these localities are flush with cash. These officials who call for more state-level funding are agents of an ineffective status quo that shackles Ohio’s economy, slows job creation and stymies population growth.

Two major data points undermine the hyperbole that “draconian” cuts to redistributive spending will doom our local governments.

First, most municipalities have seen rapidly increasing revenues, especially from income and sales taxes. As the Buckeye Institute recently reported, according to the Ohio Department of Taxation, the aggregate amount of municipal income-tax revenue in 601 tax levying municipalities increased by nearly $230 million between 2011 and 2012. Ohio counties also saw their sales-tax collections increase in 2013 by more than $80 million. Cumulatively, that represents more than a 5 percent increase for those tax collections, and since 95 percent of those municipalities and counties did not increase their tax rates during that time, that means that the lion’s share of the revenue growth can be attributed to the state’s recovering economy.

Second, many municipalities and counties have amassed so much revenue that they now enjoy large unassigned general-revenue fund balances. These are essentially flexible “rainy-day funds” that serve as good indicators of the relative fiscal health of local governments. Publicly available financial statements for 2012 reveal that nine out of 10 Ohio counties and municipalities have rainy-day funds that exceed the statutory 5 percent level required for the state’s own rainy-day fund. Indeed, when combined, the state’s counties and municipalities have almost twice the $1.5 billion balance in the state’s unassigned-revenue fund.

Beyond this, the prophets of doom should be reminded that even before recent spending cuts took effect, their beloved “Local Government Fund” redistributed out of Columbus accounted for less than five cents of every dollar in revenues shared by the state with local governments, and only slightly more than one percent of total local revenues. Rudimentary accounting tells us that simply reducing the Local Government Fund distributions will not imperil the fiscal well-being of our local governments.

And yet the scare tactics of the fearmongers continue because they prefer that local governments spend what Columbus redistributes, not what they levy in taxes. Why? Because as long as the state subsidizes local governments, local officials can all-too-easily blame Columbus for their challenges and shortcomings. This, in turn, stymies real reforms aimed at shared services, consolidation and labor issues, because money from Columbus helps to compensate for inefficient government practices.

By contrast, this sort of blame-shifting becomes far less effective if taxpayers recognize that flaws and deficiencies in local government services have more to do with their elected officials and less to do with the spending in Columbus. Such recognition leads to accountability. Accountability leads to reform. And that is precisely what the big-spending fearmongers fear most.

Over the past 50 years, Ohio has fallen behind Southern and Western states in both job and population growth. A prime contributor to the state’s decline has been the unwillingness to come to grips with a rapidly changing economic landscape and to embrace a new fiscal future. Massive revenue sharing between the state and local governments is part of the past that will continue to haunt Ohio’s future if real accountability and reform are not brought to bear.

In the long run, policies that promote economic growth will do more to help constituents than pandering in Columbus. Rather than crying “The sky is falling!” and blaming Columbus for every imagined misfortune, local officials should act to reduce spending and reform policies that will serve to grow their economies.

Greg R. Lawson is statehouse liaison and policy analyst for the Buckeye Institute for Public Policy Solutions.