House OKs cigarette tax increase
COLUMBUS - The Ohio House narrowly approved a package yesterday to increase the cigarette tax and impse a temporary tax on trusts to help eliminate a $1.75 billion state budget deficit.
The Senate, which approved a similar bill last week, is scheduled to vote today on the House changes.
The bill was designed to balance Ohio's $44 billion, two-year budget for the remaining 13 months. But budget experts warn that the package could set up the state for even worse problems next year because it relies on a lot of money that will not be available when lawmakers develop the next two-year budget.
Gov. Bob Taft is expected to sign the bill, though he hasn't said whether he will veto several controversial items.
"We're going to reserve our decision on line items until we see the final version that emerges from the legislature," Taft said.
Yesterday's vote came after a week of late nights and early mornings marked by arm-twisting, ideological fights and election-year politics. The House passed the bill 51 to 43 after a 2 1/2-hour debate.
Not one Democrat voted for the package, in part because Democrats had no say in crafting it. The tax increases aldo give Democrats an election-year issue, though no Democrat offered a comprehensive alternative.
"Obviously, there are some things in this bill that we had to do that are discouraging for members of the Republican Party," said House Speaker Larry Householder, a Perry County Republican. The vote was so tight that lawmakers had to remove a provision that would have allowed retailers to keep a larger profit from cigarette sales.
The provision could have presented a conflict of interest for State Sen. Jeffry Armbruster, a North Ridgeville Republican who owns several convenience stores.
Armbruster's vote is needed to approve the measure in Senate.
The provision is expected to be added to another bill.
This budget package:
Increases the state cigarette tax by 31 cents a pack, to 55 cents.
This will generate an additional $283 million a year. The Senate version increased the tax to 74 cents a pack.
Subjects income from trusts to the state income tax, raising $119 million a year. The tax expires at the end of 2004.
Calls on Taft to cut spending by $100 million this year, and $130 million next year.
Cuts income taxes, starting in 2005, as long as future legislatures don't change the provision. The measure would adjust Ohio's income tax rate brackets for inflation, so taxpayers won't jump to a higher tax bracket just because they receive a cost-of-living pay increase. The change is expected to save taxpayers $78 million for the 2005 tax year, and more in later years. Taft has promised not to veto the measure.
Tries to limit future state spending growth. It prohibits spending from increasing above current levels for the next two-year budget, except for higher, primary and secondary education, Medicaid, debt repayment and property tax relief, which accounted for 72 percent of the state budget last year. However, future legislatures could change the provision.
Empties the state's $600 million emergency "rainy day" fund and uses $345 million from Ohio's share of the federal tobacco settlement, which had been earmarked for school construction.
State officials will replenish the school construction money by selling bonds. The rainy-day fund, however, which stood at $1 billion when the two-year budget began last year, probably won't be replenished for years.
If the bill becomes law, Ohio would be using nearly $3 billion in the current two-year budget that will not be available next year, when lawmakers develop the next two-year budget, according to the Federation for Community Planning, a nonprofit group based in Cleveland.
"You can't sustain those expenditures," said John Corlett, a senior fellow at the federation. "You're either looking at dramatic spending cuts or a tax increase" next year.
State Rep. Ed Jerse, a Euclid Democrat, likened the budget package to using a credit card to pay off debt.
Householder estimates that the state could start the budget process next year with a $4 billion deficit, including increases in Medicaid and education spending. And his estimate doesn't include a potentially expensive school-funding decision that could come from the Ohio Supreme Court this year.
The budget bill didn't address the lawsuit, either.
To avoid dramatic spending cuts or another tax increase, lawmakers said they are counting on the economy to turn around.
"If we don't see an immediate turnaround, we'll be back here in December, and we won't have the rainy-day fund to rely on," said Rep. Jamie Callender, a Willowick Republican.