The economic impact of rolling back cap-and-invest

One of the biggest stories of the last four months has been the high cost of crude oil due to the U.S. war with Iran and its impact on the cost of gasoline. We know that rising gas prices hurt low-income and rural consumers disproportionately because they have a less elastic demand for gasoline. When prices go up, they still need to fill up their tanks just as frequently. 

This has led to states suggesting policy changes in order to help out these people. One such proposal was to suspend gas taxes, which I’ve already written about. More recently, California and New York have suggested rollbacks of their cap-and-invest programs.

Fundamentally, cap-and-invest and the gas tax are attempting to do the same thing: address externalities associated with the consumption of gasoline. The mechanisms are different, but they both raise the price of gasoline in order to get the market to account for costs that would otherwise be imposed on society. By increasing the price of activities that generate pollution, these policies encourage consumers and businesses to reduce emissions where doing so is less costly than continuing to pollute.

What is wrong with rolling back cap-and-invest?

The core issue with these policies is that they are introducing deadweight loss into these markets and making them less efficient. The cap-and-invest program is designed to provide markets a way to interact with the cost of their carbon dioxide emissions. As long as you accept that carbon dioxide emissions have a social cost, then it is non-controversial that markets which create carbon dioxide emissions should account for that cost.

Changing these policies doesn’t do anything to change the market price of gasoline. That is largely outside the control of these governments. Suspending cap-and-invest may lead to a reduction in the price of gasoline at the pump, but it does so at the cost of higher than optimal negative externalities.

It may be the case that the goal of easing financial burdens for these affected communities is worth the cost of introducing these additional externalities, but policymakers should recognize that this is a tradeoff rather than a free source of relief. Lowering the price consumers pay by weakening environmental policy reduces the incentive to conserve fuel and increases emissions. If the objective is simply to help households cope with higher prices, there are often more targeted ways to accomplish that goal. 

An alternative solution: improving access to gasoline substitutes

This is a vague suggestion because how people substitute away from gasoline consumption might look very different across the country (and it may be impossible for some), but a natural suggestion to ease the burden of rising costs is to help people increase their elasticity of demand. 

In urban areas, this could be achieved by expanding public transportation services or reducing the cost of using it. Having free buses that run more frequently might encourage people to find a bus route to work instead of driving themselves. Similarly, investments in safe bicycle infrastructure or commuter rail can provide additional options that reduce dependence on gasoline over time. 

In more rural communities, the available substitutes to gasoline use are more limited. Expanding vanpool programs, supporting employer-sponsored transportation, or encouraging greater access to remote work can all reduce the amount of driving households are required to do. If policymakers want to take a more long-term view of the problem, tax incentives for people to purchase EV’s could reduce the specific demand for gasoline. None of these policies eliminate the need for gasoline entirely, but they make consumers less vulnerable when prices inevitably rise.

Another option is to provide direct financial assistance to households rather than lowering the price of gasoline for everyone. Targeted tax credits or cash assistance preserve the price signal created by gas taxes or cap-and-invest programs while still helping families afford higher transportation costs. Instead of making gasoline artificially cheaper—and encouraging greater consumption—these policies allow consumers to make their own decisions about how best to use the additional income.

High gasoline prices create real hardships, particularly for households that have few alternatives to driving. But that does not necessarily mean environmental pricing policies are the wrong target. If the goal is to reduce financial burdens without sacrificing the benefits of pricing pollution, policymakers should focus on making consumers more resilient to price increases rather than ignoring the costs of externalities.

Making policy analysis make sense: The “Grandma Bessie Test”

Over the past month, I’ve been reading through Eugene Bardach’s A Practical Guide for Policy Analysis: The Eightfold Path to More Effective Problem Solving. I’ve been with Scioto Analysis for just about a year and a half now, and when I came on as a full-time policy analyst in May, it was due time I made my way through Bardach’s eightfold path for policy analysis.

Eugene Bardach passed away earlier this year, and the Goldman School of Public Policy, where Bardach was an esteemed faculty member, wrote a great article in May to honor Bardach and to remember his legacy. A large part of Bardach’s legacy is his contribution to the policy analysis field, as policy analysts, we follow the guidance from Bardach’s eightfold path closely in much of our work.

My colleague Rob has written extensively about Bardach’s eightfold path. In late 2022, Rob closed out a series of blog posts he was writing about each step of the eightfold path and practical applications of them. The eightfold path is an eight-step framework to help us understand public policy and conduct policy analysis more effectively. The eight steps in the framework are as follows:

1. Define the Problem

2. Assemble Some Evidence

3. Construct the Alternatives

4. Select the Criteria

5. Project the Outcomes

6. Confront the Trade-Offs

7. Decide!

8. Tell Your Story

Today, I want to focus on the eighth step of Bardach’s eightfold path: “Tell Your Story”.

How can we tell stories as policy analysts?

One of my biggest takeaways from Bardach’s eightfold path is the importance of conveying results and information to stakeholders and interested parties. In policy analysis, your relevant audience can range from policymakers to reporters to everyday constituents. The audience of policy analysis might be friendly, and they might be hostile. 

Bardach emphasizes the importance of choosing an appropriate medium, creating a well-structured narrative flow, maintaining credibility, and most importantly, explaining findings simply and clearly. Before even presenting our findings at all, Bardach recommends we apply the “Grandma Bessie Test”. This is an exercise where we aim to explain our work and conclusions in about one minute to our Grandma Bessie, our intelligent but not politically sophisticated grandma.

The purpose of this test is to give us a reality check–do we actually understand the conclusions from our work well enough to explain them clearly and succinctly? If we find ourselves struggling to explain our work to other people, then perhaps we don’t understand the findings well enough to make reasonable conclusions, let alone well to present to others.

How do I perform on the Grandma Bessie Test?

To determine if I’ve been following Bardach’s eightfold path well myself, I want to apply the “Grandma Bessie Test” to a few of the analyses I’ve worked on while at Scioto Analysis. For each project, I’ll aim to explain the goals, methods, and findings in just a couple of sentences,

Wildlife Crossings

In spring of 2025, we released a cost-benefit analysis about wildlife crossings. Wildlife crossings are bridges, culverts, underpasses, or other structures intended to direct animals across roadways to safely navigate through their habitat. To conduct our analysis, we pulled data from various departments of transportation and other state agencies to calculate how many wildlife-vehicle collisions can be prevented from each structure. 

By preventing collisions, we can save lives, avoid damage to vehicles and infrastructure, and restore ecosystem connectivity. Ultimately, we found that over a 70 year lifespan, one wildlife crossing can prevent 1,400 collisions, decrease at least one fatality, reduce 60 injuries, and create over $14 million in net present value to society.

Energy Permitting

In December of 2025, we released a study analyzing the energy permitting process in Ohio in partnership with the Ohio Chamber of Commerce Research Foundation. This refers to the process of applying for and getting approved for a permit to build an energy permitting facility in Ohio. The energy permitting process is lengthy and methodical: there are many built-in opportunities for community input and legal review. These steps are important because they ensure that both community and legislative priorities are taken into consideration, but they come with a steep tradeoff. 

To conduct our analysis, we reviewed the entire energy permitting process according to the Ohio Revised and Administrative Codes, and we collected data on energy permitting timelines from projects across the past several years. We found that the average timeline for receiving an energy permit is 540 days, nearly one year longer than the statutory goal. Per year, these delays result in $440 million in lost investment, 5,400 fewer jobs, 9,000 megawatts of lost energy capacity, and $4.3 million in lost state tax revenue.

Affordability in Franklin County

In February, we released a study on affordability in Franklin County. Our goal was to replicate the regional price parity but at the county level. The regional price parity is an affordability measure created by the Bureau of Economic Analysis. The measure consolidates relative prices from housing and essential goods and services into one index that can be used to compare prices across different states. In our analysis, we wanted to create a county price parity measure to compare prices in Franklin County to other, similar counties around the country.

We used consumer price index data from the Bureau of Labor Statistics, total spending data from the Bureau of Economic Analysis, and household income and expenditure data from the American Community Survey. We found that despite a high tax burden, the cost of living in Franklin County is relatively low compared to similar counties. For instance, prices in Franklin County are about 18.5% lower than in Tampa’s Hillsborough County and 11.8% lower than in Atlanta’s Fulton County, mainly due to relatively affordable housing, electricity, and groceries.

How do you think I did? If Grandma Bessie can’t understand these, then at least some policymakers are struggling with it, too. This test is a great tool for making policy analysis accessible to the people who are supposed to use it.

TIFs: When Future Tax Dollars are Already Spoken For

I graduated from the University of Oklahoma this May. Around campus, I heard a lot about the planned Rock Creek Entertainment District. The development will be anchored by a new arena for the university’s basketball and gymnastics teams, which will be surrounded by other event venues, hotels, and restaurants. 

Because I don’t watch sports, this was initially a mundane piece of news for me. The topic became more interesting when I observed how many of my fellow Sooners took issue with the plan.

Some felt the new arena will be too far from campus and downtown Norman, Oklahoma. It will sit miles to the north and just off of Interstate 35. The location is sure to be convenient for visitors, but it may lead them to get back onto the interstate quickly once an event ends rather than sticking around Norman and spending money which would generate tax revenues for the city.

Another critique owes to the funding plan attached to the arena. This month, Oklahomans for Responsible Economic Development sued a slew of parties involved in the project’s development to stop it on these grounds. The group argues that the two tax increment financing districts Norman created for the project are illegal under Oklahoma’s constitution, among other complaints. The same group previously raised a petition for a public vote on the tax increment financing plan which garnered over 11,000 signatures. That effort failed after Oklahoma’s supreme court rejected it.

What is TIF?

A TIF district, or tax increment financing district, reallocates future tax dollars raised in an area to fund a project’s development costs. Essentially, a local government wagers that once the project is complete, it will generate new tax dollars in the form of sales taxes, property taxes, hotel taxes, or other levies. The local government borrows money today, and the loan is later repaid via tax dollars the project creates once finished. Separate tax increment financing districts can be created for the same project to commit tax revenue from different sources to this purpose.

The taxes used to repay the loan generally only include new revenues generated, which will ensure that the local governments can continue to fund services as they did before the tax increment financing district was created if this money were not to be raised otherwise. This arrangement is attractive to local governments who want to invest in large development projects without the appearance of giving over large quantities of public dollars to developers instead of investing them into services which more directly benefit the public welfare.

Why is Norman’s TIF Controversial?

The Rock Creek plan is not one tax increment financing district; it is two. A first controversy is the scale of the public commitment. The total authorized public financing across the two districts is up to $600 million. Some doubt that the Rock Creek District can generate enough new tax growth to justify authorizing that much money over the plans’ 25 year lifetimes. Beyond concerns about the price tag, each of the districts carries its own controversy.

The Property Tax Increment Financing District

This tax increment financing district captures growth in taxable property value above the existing base. In theory, a property tax increment financing district doesn’t take money away from existing public services. If $10 million in annual revenue is currently generated, and later the area generates $30 million in property taxes, the original $10 million continues being collected as it always has, and the added $20 million is used to pay for the project.

The Rock Creek tax increment financing plan depends on the claim that the entertainment district will create property tax growth that would not otherwise exist. If the arena and its nearby hotels, restaurants, and retail developments generate new, taxable activity, the city can argue that the project is partially paying for itself. 

But what if, in the absence of the district, there would have been property tax growth anyway? In that case, the city’s future tax revenues would suffer. Without tax increment financing, that new tax revenue would have supported city services, schools, and other public needs. With tax increment financing, the growth is instead redirected to a development tied closely to college athletics.

The Sales Tax Increment Financing District

This tax increment financing scheme captures a portion of the city’s sales tax revenue generated inside the district. Specifically, the sales tax increment is drawn from Norman’s non-dedicated and capital improvements sales taxes, which together equal 3% of gross taxable sales inside the district. Those revenues would otherwise flow into Norman’s General Fund or Capital Improvements Fund.

The logic here is that the project will generate sales that would not otherwise occur in Norman. Developers argue the city is not giving up existing revenue as much as they are dedicating a portion of the new sales tax created within the district to pay for the development that made it possible. If the district succeeds, the project helps finance itself.

This argument depends on a key assumption: that the sales generated by the project would not happen without the project. If visitors come from out of town and spend money in Norman that they otherwise would have spent in another city, Norman may come out ahead. But if they just choose a restaurant or hotel inside the entertainment district instead of one elsewhere in Norman, the city has not gained new economic activity. Instead, local spending was redirected into a district where the project, rather than the city budget, gets to claim some of the tax receipts.

Why Tax Increment Financing Matters Beyond Norman

The Rock Creek fight is local to Norman; tax increment financing is not. The tool has become a common way for local governments to finance economic development. Tax increment financing is authorized in nearly every state, and some states use them extensively. In Wisconsin, there were 1,400 active tax increment districts in 2024. Minnesota had 1,657 in 2024, and Illinois had 1,488 in 2025.

These thousands of tax increment financing plans don’t generate many news stories because they tend to be used for lower-profile projects than Norman’s Rock Creek District. They often support development in underused or “blighted” areas by financing roads, utilities, brownfield cleanup, or other infrastructure needed to make land more developable. Using tax increment financing that way does not usually produce high-profile public conflicts like Norman’s arena district has.

Tax increment financing may be so common because its appeal to cities is obvious. Local governments are often asked to produce economic growth without raising taxes, and tax increment financing offers a way to promise development today using revenue the project is expected to create tomorrow. Structuring investments this way can make public financing feel less costly than other methods might.

But tax increment financing does not create money out of nothing. Future revenue is still public money, and giving one development first claim on those dollars means the money cannot be spent on anything else. If growth would have happened without tax increment financing, or if spending shifts from elsewhere in the city to the new development, then the city may just lose access to future tax revenue it otherwise would have received.

Using tax increment financing for arena or stadium districts is especially noteworthy because stadiums and arenas have a weak record as economic development investments. The economic literature consistently finds that these facilities tend to produce modest and sometimes negative effects on local economies. Norman’s Rock Creek District may prove to outperform the average arena project. Still, the poor track record of stadium-centered economic development investments should be considered. The more uncertain the payoff, the more important the tax dollar tradeoff becomes. 

Despite this, Norman will not be the first place to use tax increment financing this way. Washington D.C. used tax increment financing to fund improvements to Capital One Arena. Louisville and Port St. Lucie, Florida used tax increment financing for soccer stadium developments. These examples suggest that tax increment financing may be becoming a route for local governments to finance sports and entertainment projects while describing the public’s contribution as self-financing.

Research on tax increment financing gives reason for caution about that claim. In a 1999 study on northeastern Illinois municipalities, researchers found evidence that tax increment financing may stimulate growth inside of the designated district while slowing growth elsewhere in the same city. More recent reviews find that though tax increment financing remains popular, it often falls short of their promise to reinvigorate struggling areas, especially when cities do not rigorously examine whether development would have happened without granting tax increment financing.

That is why the Rock Creek Entertainment District fight has relevance far removed from Oklahoma college sports. It makes plain the question which every tax increment financing plan should have to answer, whether used to finance a sporting arena or a more mundane development. Is the project creating enough new public value to justify the future tax revenue it receives? If the answer is yes, the claim on tomorrow’s taxes may be worth granting. If property tax growth would have happened anyway, or if spending is merely shifted around town, tax increment financing may not actually pay for itself.

What is regulatory capture?

In past blogs, I’ve written about lots of different market failures. If you want to learn more about public goods, the tragedy of the commons, information asymmetry, natural monopolies, or externalities, check out the relevant links. 

Today I wanted to talk about another problem that occurs in markets, but one that is not technically a market failure (some people use the term “government failure”): regulatory capture. 

What is “regulatory capture?”

In classical microeconomic theory, firms are profit-maximizing entities. In competitive markets where prices are determined by market forces, it follows that for a firm to increase their profits they need to lower their costs.* This system is designed to drive innovation, pushing firms to improve their processes and products in order to get a competitive advantage in the marketplace. That’s the goal of the competitive market: firms that innovate more successfully get a competitive advantage and enjoy higher profits.

However, perfect competition is a theoretical ideal. In the real world, there is all sorts of noise that muddies the water. These are the market failures that we’ve spent so much time going over, and the end result is that markets often need some kind of intervention from the public sector in order to operate more efficiently. Regulatory capture occurs when the presence of regulations gives firms an incentive to use political capital to improve their standing in a market instead of relying on a competitive advantage. 

One example would be a company lobbying policymakers for more strict licensing requirements in order to keep new competitors out of the market. If regulators adopt those rules primarily because of pressure from existing firms rather than because the rules benefit the public, this would be an example of regulatory capture. They haven’t invested in improving their service, but by pushing for more stringent regulations they can artificially inflate their presence in the market. 

Another example would be when public officials rely on expertise from industry representatives to help form regulations. This can happen anywhere, but it is especially prevalent in highly technical industries such as information technology and energy. 

The challenge with these industries is that policymakers don’t have the expertise required to make sensible regulations. The industries are just too complicated. So, they must rely on advice from members of the industry who have a vested interest in making sure the regulations suit their needs rather than overall social wellbeing. 

What can policymakers do about regulatory capture?

The short answer is deregulation. Of course, there are many markets where the threat of regulatory capture is not as important as solving a market failure, so the decision whether to regulate or not is entirely dependent on the specific circumstances of a particular market. Policymakers could try and implement a regulatory budget to try and balance these competing interests. 

In cases where regulators must rely on firms for specialized information, the ideal would be to have more subject matter experts working in the public sector. While governments may never have the same level of expertise as the industries they regulate, building independent expertise and seeking input from a broad range of stakeholders can make regulatory capture less likely and help ensure that regulations are designed to benefit the public rather than a handful of firms.

* Firms could also charge more for a higher-quality product, but it generally is easier to think of goods in markets as being homogenous and that producers can generate more or less surplus based on what kind of competitive advantage they have during production.

Ohio economists split on value of Medicaid fraud prevention programs

In a survey released this morning by Scioto Analysis, 6 of 13 economists indicated that Medicaid fraud prevention programs that increase penalties and require additional verification and inspections will create fiscal savings that outweigh the administrative costs of running them.

Earlier this month, Medicaid provisions were added to Senate Bill 315 to reduce fraudulent claims by increasing penalties, requiring electronic video verification, and increasing inspections. As of June 29, Senate Bill 315 has passed both the House and Senate and is now on Governor DeWine’s desk awaiting his signature.

Six economists agreed that Medicaid fraud programs would create fiscal savings that outweigh their costs.Two economists were uncertain, 4 economists disagreed, and 1 had no opinion. Michael Jones of the University of Cincinnati explained, “a low-cost verification system that confirms identity and eligibility at the moment that services are provided should produce a positive ROI for Ohio. Ohio should be implementing electronic visit verification for nearly every service that is reimbursed. Unfortunately, AI and other economic forces are moving us from a high-trust to a low-trust society; and reasonable checks and inspections can help restore societal trust in government services.”

5 of 13 economists were uncertain about the impacts of Medicaid fraud prevention programs on access for vulnerable populations like people with disabilities. According to Jonathan Andreas of Bluffton University, “It will undoubtedly reduce access in the short run because of inevitable false positives which reduce necessary care, but in the long run, IF it increases the efficiency of Medicaid, it could increase care because of helping channel scarce dollars to the patients who really need them rather than to fraudsters.” Of the remaining economists, 3 agreed that fraud prevention programs would reduce access, and 3 disagreed.

5 of 13 economists disagreed that Medicaid fraud prevention programs will generate a greater economic return than expanding benefits for recipients, with another 5 economists uncertain. According to Charles Kroncke of Mount Saint Joseph University, “I doubt the financial return of the program will exceed its expenses. In addition, there will be a social cost of vulnerable populations losing benefits.” Of the economists who were uncertain, many expressed it is difficult to estimate how fraud prevention will impact the efficiency of Medicaid. 

The Ohio Economic Experts Panel is a panel of over 30 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists. Individual responses to all surveys can be found here.

Which states rely the most on sin taxes?

Since the early 20th century, economists have favored taxing activities with negative spillover effects. While economists call these taxes “Pigouvian Taxes” after the early 20th century economist Arthur Cecil Pigou who first proposed them, they have a more moralistic name in the media today: “sin taxes.”

In recent years, Cuyahoga County and Cleveland officials have considered asking voters to triple, or even quadruple, alcohol and tobacco tax rates in the area. My colleague Rob wrote about Governor DeWine’s proposal to increase tobacco taxes back in 2025. In Cleveland, tobacco taxes help fund its three major sports stadiums, and with a new Cleveland Browns stadium most likely on the horizon in the near future, tax revenue from taxes on alcohol and tobacco in Cleveland may become increasingly valuable for stabilizing local finances. 

A “sin tax” is an excise tax on a good or service that is deemed harmful to society in some sort of way. The term “sin taxes” most commonly refers to taxes on alcohol and tobacco, but more recently, the definition has expanded to cannabis and sports gambling as well. Alcohol and tobacco taxes are a form of “Pigouvian taxation,” the idea that we should tax economic transactions that have negative externalities that cause harm to others, such as health issues or financial trouble.

Local officials argue that since Cleveland’s alcohol and tobacco rates haven’t changed since 1990, it’s time for an inflationary adjustment. However, funding the new Cleveland Browns stadium through public tax dollars has been overwhelmingly unpopular among residents, suggesting that increasing taxes on alcohol and tobacco is unlikely to see success on a ballot. Plus, people like to smoke cigarettes and drink alcohol, so why would they want to increase the prices they pay for them?

Reading about alcohol and tobacco taxes in Ohio got me thinking: is it typical for states to rely so heavily on these kinds of taxes for major infrastructure projects? And if so, which states rely most heavily on these taxes for their tax budgets, and where does Ohio rank within them?

Sin taxes across the United States

Each year, the United States Census Bureau releases data tables about state and local government finances, with the most recent data available being from 2023. We can use these data tables to determine which taxes contribute the most to each state’s tax revenue. 

The table below shows the total amount of tax revenue generated from taxes on alcohol, tobacco, and gambling across the United States and the proportion of total state tax revenue that these taxes account for in each state.

Alcohol, Tobacco, and Gambling Taxes by State
State	Total Alcohol, Tobacco, and Gambling Taxes	% of State Tax Revenue
New Hampshire	$230,454,000	1.48%
Oklahoma	$586,307,000	1.11%
Tennessee	$812,548,000	1.00%
Alaska	$159,761,000	0.98%
Rhode Island	$155,213,000	0.95%
Kentucky	$535,118,000	0.88%
Pennsylvania	$1,595,478,000	0.87%
Wisconsin	$617,771,000	0.86%
Arkansas	$319,760,000	0.85%
Delaware	$137,090,000	0.85%
Maine	$154,919,000	0.83%
Texas	$3,006,921,000	0.82%
Montana	$115,819,000	0.81%
Vermont	$87,235,000	0.80%
West Virginia	$190,489,000	0.80%
Minnesota	$670,860,000	0.79%
North Carolina	$997,948,000	0.76%
Alabama	$514,549,000	0.76%
Michigan	$939,852,000	0.74%
South Dakota	$73,573,000	0.73%
Kansas	$281,908,000	0.70%
Illinois	$1,288,989,000	0.70%
Connecticut	$354,194,000	0.66%
Washington	$819,687,000	0.65%
Ohio	$961,630,000	0.64%
Oregon	$434,060,000	0.59%
Nevada	$217,703,000	0.58%
Maryland	$477,986,000	0.54%
Hawaii	$132,051,000	0.53%
Virginia	$619,201,000	0.52%
Georgia	$631,853,000	0.52%
Florida	$1,332,233,000	0.51%
Colorado	$407,627,000	0.50%
South Carolina	$345,970,000	0.50%
Louisiana	$322,743,000	0.49%
Indiana	$431,001,000	0.49%
New Jersey	$678,047,000	0.47%
Mississippi	$169,652,000	0.46%
Iowa	$203,529,000	0.43%
Massachusetts	$464,359,000	0.40%
Arizona	$347,834,000	0.39%
California	$2,055,608,000	0.29%
Nebraska	$83,440,000	0.28%
New York	$1,178,496,000	0.27%
Idaho	$52,892,000	0.26%
Utah	$124,092,000	0.26%
North Dakota	$33,457,000	0.24%
Missouri	$173,673,000	0.23%
New Mexico	$106,051,000	0.22%
Wyoming	$22,098,000	0.18%
District of Columbia	$16,199,000	0.07%

The five states that generate the most tax revenue through these taxes are Texas, California, Pennsylvania, Florida, and Illinois. This is mostly a story about each state’s population and concentration of large cities.

To better understand which states rely the most on alcohol, tobacco, and gambling taxes, we should look at the proportion of state tax revenue that these taxes contribute to. The figure below shows a heat map of which states rely the most on alcohol, tobacco, and gambling taxes as a proportion of their total state tax revenues.

The proportion of state tax revenue generated from these taxes ranges from 0.07% (District of Columbia) to 1.48% (New Hampshire). The states with the highest percentage of tax revenue generated by these taxes are New Hampshire, Oklahoma, Tennessee, Alaska, and Rhode Island, while Ohio ranks 25th. Why do these states rely the most on alcohol, tobacco, and gambling taxes?

New Hampshire: #1 state for sin taxes

About $230 million in state tax dollars are generated by alcohol, tobacco, and gambling taxes in New Hampshire annually, which accounts for 1.48% of total state tax revenue. According to the New Hampshire Business Review, taxes on gambling and betting are the biggest contributors to this revenue in New Hampshire, and in fiscal year 2024, tax revenue from gambling and betting was higher than projected, while tax revenue from alcohol and tobacco was lower than projected.

Gambling and betting has always been common in New Hampshire, but its popularity has especially taken off in recent years. Within the past few years, several new casinos have opened up in New Hampshire, charitable gaming has grown more popular, and the state lottery system has been expanded.

Additionally, over the past few years, New Hampshire has consistently had the highest per capita alcohol consumption across the entire country, suggesting that tax revenue from alcohol is relatively higher in New Hampshire than other states.

New Hampshire is also one of two states in the country that do not collect a state income tax or sales tax. Because of this, the state is more likely to rely on other sources of tax revenue, such as alcohol, tobacco, and gambling taxes, to contribute to its state tax revenue.

Oklahoma

Oklahoma generates about $590 million in alcohol, tobacco, and gambling tax revenue per year, or about 1.11% of total state tax revenue. Oklahoma’s reliance on these taxes is likely driven by the large prevalence of gambling and the relatively low individual tax burden. Oklahoma ranks second in the United States in number of casinos, only ranking behind Nevada. Oklahoma has 142 casinos, while Nevada has 231 casinos, and the state with the third largest number of casinos, California, has just 83. 

Oklahoma also has the ninth lowest individual tax burden in the United States, suggesting that a relatively higher proportion of tax revenue would be generated from alcohol, tobacco, and gambling taxes than income or sales taxes. Oklahoma legislators have recently suggested increasing cigarette taxes even more, which could lead to Oklahoma relying more heavily on these taxes moving forward.

Tennessee

Tennessee generates about $810 million in alcohol, tobacco, and gambling tax revenue annually, which accounts for around 1% of total state tax revenue. Tennessee’s high reliance on these taxes could be explained by a couple of reasons.

Tennessee is one of nine states that does not collect income taxes, meaning that they must collect more taxes in other areas. In 2020, Tennessee ranked second in alcohol tax revenue per capita, and in 2022, the state ranked third in adult cigarette smoking rates.

Alaska

About $160 million in state tax dollars are generated by alcohol, tobacco, and gambling taxes per year in Alaska, accounting for about 0.98% of total state tax revenue. Alongside New Hampshire, Alaska is the only other state in the country that does not have a statewide income tax or general sales tax, meaning that they must rely more heavily on other forms of taxation for state tax revenue.

Alaska has the highest per capita alcohol tax revenue out of all fifty states, and they rank tenth in alcohol consumption per capita, suggesting that a large portion of tax revenue in Alaska comes from alcohol sales.

Rhode Island

Rhode Island collects about $155 million in tax dollars from alcohol, tobacco, and gambling taxes per year, accounting for about 0.95% of total state tax revenue. With a cigarette tax rate of $4.50 per pack, Rhode Island is tied with Washington D.C. for the third highest cigarette tax rate in the country. Rhode Island’s cigarette tax rate is about $2.50 above the national average, and legislators have recently suggested increasing the cigarette tax rate in Rhode Island even more.

The future of sin taxes

While many states and localities rely on alcohol, tobacco, and gambling taxes for financing public services, alcohol consumption is on the decline nationally and tobacco use has been declining for decades. While sports gambling has risen dramatically in the past decade, this trend is unlikely to continue indefinitely into the future. As Pigou originally theorized a century ago, these sorts of taxes are better tools for curbing behavior than creating sustainable revenue streams.

How do you value public goods?

I just got back from a vacation in Hawaii where I got to go see Volcanoes National Park, the site of the actively erupting Kilauea shield volcano and one of the most unique landscapes you can find on earth. While I was there, I picked up my America the Beautiful Pass, an annual pass that provides unlimited entrances to all of the areas managed by the national park service that require fees to enter. 

This is a great example of the government stepping in to try to prevent a tragedy of the commons, but I wanted to talk about a different angle about what this entrance fee might tell us. Particularly, how much value do people get out of national parks?

Why do we need to know willingness to pay?

In cost-benefit analysis, “willingness to pay” is the essential piece of information that allows us to compare wildly different impacts in a single coherent way. It is what allows us to say things like “X reduction in the crime rate is equivalent to Y energy savings annually.” A cost-benefit analysis is not complete without the monetization step, and when we are measuring something that doesn’t have a price because it isn’t traded in some market then we need some estimate for what that price would be if a market existed.

So, in the example of the national park, is it fair to say that my willingness to pay was $80? One flaw right away is that I purchased an annual pass, and since purchasing it I’ve used it three times already. Does that mean my willingness to pay is $80 divided by the number of visits I make in a year? 

Clearly the entrance fee is not a good estimate for willingness to pay. We might be clued into that realization from the fact that these entrance fees aren’t market prices, they are a policy intervention to limit overuse. Again, natural resources are often common goods and can’t easily be traded in a fair market. One approach that economists use is the travel cost method, looking at the cumulative travel costs that go into a trip to determine the total willingness to pay.

Using travel costs to estimate willingness to pay

I’ve written before more generally about how economists go about calculating willingness to pay, and using travel costs certainly falls under the umbrella of a revealed preferences approach. The basic idea is this: when a natural area has a primary function of outdoor recreation,* then how far people are willing to travel gives us some idea of how valuable that particular area might be to the people who visit it.

For example, imagine that your neighborhood has two parks. One you can quickly walk to that doesn’t have many amenities, and another that you’d have to drive to but has newer facilities. If you consistently choose to drive to the second park, you are revealing something about your preferences. The extra time, gas, and effort involved in getting there are costs that you are voluntarily choosing to incur because you believe the experience is worth it.

The logical conclusion is that because you are willing to spend more to travel to the nicer park, those amenities must be more valuable than the additional costs. Collecting this information from multiple sources over a wide range of costs and amenities can give us enough to calculate willingness to pay.

The travel cost method is one way economists can get better estimates for how much people value all sorts of things. It’s mainly used to help value ecosystem services, but there might be other scenarios where this method might be helpful. 

* The literature surrounding the value of ecosystem services is broad and reaches far beyond the direct willingness to pay people have for recreation opportunities. A full deep-dive into all the ways natural areas provide value to humans is beyond the scope of this blog.

Who Pays if Ohio Eliminates Property Taxes?

Earlier this month, county finance directors breathed a collective sigh of relief as outlets reported the statewide effort to abolish property taxes had not collected enough signatures to make it onto the fall ballot.

Organizers announced they were not going to give up the fight yet, vowing to continue collecting signatures with the goal of putting the initiative on the ballot in November 2027. Ohio will likely continue talking about property tax abolition for the next year and a half, if not longer.

Why do people want to abolish property taxes?

Affordability debates often focus on housing, grocery, and transportation costs, but local tax policy matters too. Tax burdens, housing costs, wages, and local services all shape how attractive Ohio is to current and potential residents.

Property taxes have catapulted themselves into the center of the state public policy conversation in Ohio over the past few years, but they have always been something that homeowners have paid attention to. Property taxes are visible. Unlike sales taxes, which are often hidden in prices of goods bought at retail, and income taxes, whose sting is reduced through withholding, homeowners see property tax bills, and feel them when they go up during increases in housing prices. In the past five years, Ohio’s housing prices have grown at the fastest rate on record. Since property taxes are based on assessed housing values, homeowners are feeling these price increases as large, automatic tax increases.

These increases are especially difficult for retirees and other people on fixed incomes like people with long-term disability. Their incomes usually do not rise with the costs of housing, so their discretionary income falls with increases in housing prices. It can also be a challenge for people dealing with low incomes and weak labor markets.

Though property taxes burden homeowners and renters, they have a major benefit: funding public services. Though the connection between public services and taxes can be difficult to see, property taxes are one of the most important tools for financing local government in Ohio.

What do property taxes pay for in Ohio?

A September 2025 memo by the Ohio Legislative Service Commission lays out the uses of property taxes in the state.

The majority of property taxes in Ohio go to school districts. The Ohio Legislative Service Commission estimates property taxes will pay for $15 billion in school district funds in Fiscal Year 2027, which represents nearly two-thirds of all property taxes collected in the state. A few years ago, we conducted a study on school spending which found spending on schools pays off in future labor market earnings for students.

The Ohio Legislative Service Commission projects another $3.8 billion to go to county governments, which provide human services (including administration of safety net programs like SNAP), courts, jails, and public health services.

The remaining $4.6 billion is split between townships, municipalities, and special taxing districts, which finance fire, police, roads, libraries, parks, senior, child, and developmental services, and a range of other public services.

How much money is at stake if property taxes were repealed in Ohio?

All in all, the Ohio Legislative Service Commission estimates local governments will collect over $23 billion in property taxes in Fiscal Year 2027. The Commission estimates that a full repeal would lead to a shift of about $2.6 billion in taxes to fixed-sum levies which would not be covered by the repeal, meaning that the full repeal would amount to a total of $21 billion in property tax repeals.

What could replace property taxes in Ohio?

Property tax repeal would leave a multibillion dollar gap in Ohio’s local government budget. Policymakers will have to find some way to adjust to this policy change if it happens.

One option would be to increase state income or sales taxes. Ohio has been taking steps to decrease its income tax rate over the years, so this would be a reversal of state policy on this front. Ohio increased its sales tax in 2013 as part of a move to shift its taxes from income taxes to sales taxes. Ohio has lower sales taxes than all neighboring states, so it has some room to increase sales taxes without exceeding rates seen nearby.

Another would be to increase local income or sales taxes. The state of Ohio gives pretty wide latitude for local voters to approve new income taxes for municipalities and school districts. Abolition of property taxes across the state would likely lead to a wave of new local income tax levies to replace lost funding. Counties also have some ability to levy sales taxes, but state caps on county sales tax rates would have to be lifted for these to be able to meaningfully replace property taxes.

Lastly, local governments could cut budgets. This strategy is unlikely to close the gap on its own given the tens of billions of dollars that would be lost, mostly from schools, but it would likely be a part of any post-repeal fiscal environment.

Why is replacing property taxes difficult?

While repeal would happen in one fell swoop, replacement would be a piecemeal process. The most viable options for replacing property taxes would come with a required vote at the ballot, which would introduce both delays and uncertainty to the public finance system and would be accompanied with public campaigns before they could be adopted. This would also make things difficult for townships, which have fewer options for authorizing new local taxes than school districts, counties, municipalities, and special districts.

A big question mark for local governments would be whether the state would step in to help fill the budget gap at all. Given that the state has decreased support for local governments over the years and that a statewide anti-tax vote would signal hostility to new taxes, the state would face a lot of headwinds to helping local governments adjust to the new fiscal environment.

How should we evaluate property tax reform in Ohio?

Ultimately, the public and state and local policymakers will have to answer the questions they always should be answering around public policy changes: are they effective, efficient, and equitable?

While property tax reform will reduce tax burdens for some, it will come at the expense of higher taxes in other places, service cuts, or some combination of the two. Local policymakers will need to balance tax increases and benefit cuts adeptly for property tax reform to effectively ease burdens and increase incomes for residents.

Property taxes are not a particularly efficient form of taxation and their repeal could lead to efficiency gains, especially if the state replaced them with land value taxes. On the other hand, deep cuts to education will cripple Ohio’s economy in the long-run.

Property tax repeal could be a huge shift in fiscal equity in Ohio. Likely the largest distributional shift that would come from property tax repeal would be generational. Older Ohio residents who own more property and live in larger houses are likely to benefit at the expense of today and tomorrow’s schoolchildren and current wage and salaried workers.

Property tax reforms may improve Ohio’s tax system. In the short-term, however, full repeal will leave the state, its schools, and local governments with serious fiscal decisions to make.

Introducing Policy Analyst Jacob Strang

Today marks one month since I started as a full-time policy analyst at Scioto Analysis. I originally started at Scioto Analysis as an intern in January of last year. Then, I returned as a research assistant last summer, and I came on permanently as a policy analyst in May. Today, I wanted to take some time to reflect on my path to Scioto Analysis, my time at Scioto Analysis so far, and look to the future.

What was my path to becoming a policy analyst?

I graduated from The Ohio State University last month with a Bachelor of Science in Economics and Political Science. I grew up in a household where resources were tight, so when I got to college, I was always passionate about economics and policymaking. Growing up, I got to experience some economic policies that work very well and some that work very poorly. This is a big part of the reason I’m excited to join Scioto Analysis as a policy analyst: I get to help provide evidence-based analysis for policymakers and organizations to inform decision making around these very policies I experienced myself.

During college, I realized that to contribute most effectively to economic policy, I should focus on the analytical side of policymaking. I found myself especially excelling in my math, economics, statistics, and programming coursework. I earned a minor in Computer Science, and I took as many econometric and political analysis courses that my majors allowed for.

Outside of Scioto Analysis, I also completed an internship with the Ohio Auditor of State, which helped to further develop my analytical skills. I received training in Microsoft Excel, and I assisted with various state projects to test out different analytical techniques. I became a stronger and more organized analyst, which helped me move into a more significant role as research assistant at Scioto Analysis during my final year of college.

How has my time been spent at Scioto Analysis?

During my internship at Scioto Analysis, I conducted a cost-benefit analysis about wildlife crossings. The internship was one of the most valuable learning experiences I completed during college.

Throughout each twelve-week internship, interns conduct a cost-benefit analysis mostly independently with a lot of guidance and review from the rest of the team. Our internship is great for people who find experiential learning most effective–it requires a deep dive into a specific subject material and a high level of discipline to stay on track.

The cost-benefit analysis has since gotten fairly consistent coverage by various organizations and news outlets. Earlier this year, the analysis was cited by the Pew Research Center in a fact sheet about wildlife crossings. Just last week, Treelines cited the cost-benefit analysis in an article discussing new wildlife crossings structures across the country. 

I also got to present on the study at the 2025 Ohio Health Policy Summit and the 2026 annual conference for the Society of Benefit-Cost Analysis. The Society of Benefit-Cost Analysis hosts an annual conference in Washington D.C. to share current studies and findings in the cost-benefit analysis field. 

I had the incredible opportunity as a research assistant to join the team and present on the report while also learning about other cutting edge research in the cost-benefit analysis space. My personal favorite presentation during the conference was a study presented by Solomon Hsiang from Stanford University on quantifying and monetizing global climate loss and damage, which you can read more about here.

In June of last year, I returned to Scioto Analysis as a research assistant. Almost immediately, I had the opportunity to play a major role in a variety of projects. Some of my favorite projects were as follows:

• A process analysis of the energy permitting process in Ohio, where I did a deep dive into the Ohio legislative code to map out the legislative process surrounding energy permitting in Ohio

• A county price parity analysis of affordability in Franklin County, where my colleague Micheal and I replicated the Bureau of Economic Analysis’s regional price parity at the county level

• A refresh study of the state of inequality in Ohio, where I simulated what inequality in Ohio would look like under different tax scenarios

All of these projects helped develop a unique set of skills and knowledge that I will continue to use moving forward, including the ability to research, write, analyze data, program, and more.

Looking Ahead

Joining Scioto Analyst as a policy analyst is a very exciting step in my career–I’ve wanted to get involved with this kind of impactful policy work since my early days in high school debate. As a full-time analyst, I’m looking forward to the opportunity to collaborate on more economic analyses, learn more about state policymaking by writing more frequent blog posts, and become more connected in the state policymaking space.

If you have any advice as I continue on this new path as a policy analyst, or if you want to chat about any of the work I’ve done or new prospects, feel free to reach out at jacob@sciotoanalysis.com. Looking forward to many more blog posts!

How will Ohio pay for federal SNAP policy changes?

Last week, the Ohio Senate unanimously passed Senate Bill 315, a bill to increase cybersecurity for Ohio’s Supplemental Nutrition Assistance Program (SNAP), formerly known as “food stamps.”

The Supplemental Nutrition Assistance Program has come under scrutiny recently due to changes passed at the federal level as part of House Resolution 1, known to many as the “One Big Beautiful Bill Act.” Due to changes placed in this bill, state lawmakers have been rushing to tighten their state food assistance programs, hoping to avoid penalties associated with improper payments. This is likely to have a big impact in many states and could especially hit Ohio hard.

What is changing in SNAP?

The federal government is mandating a range of changes to state nutrition assistance programs through House Resolution 1. These changes focus on shifting more responsibility from the federal government to state governments and beneficiaries.

First, House Resolution 1 shifts administrative costs to states. Before House Resolution 1, states were on the hook for 50% of administrative costs. The new bill increases that cost to 75%, meaning states will need to take on more of the cost of administering SNAP programs.

The federal government is also requiring states to pick up more of the tab for benefits. The scale that the federal government has mandated is that the federal government will cover the cost of 100% of benefits for states with less than six percent error rates, but that coverage rate will shrink to 85% for states with error rates of 10 percent or higher.

Finally, the federal government is expanding work requirements for food assistance eligibility. The new law mandates new work requirements for parents of teenagers, veterans, homeless individuals, former foster youth, and people living in places of high unemployment.

Why do changes to SNAP matter for Ohio?

Ohio is a major state for food assistance benefits. 1.3 million Ohio residents received Supplemental Nutrition Assistance Program benefits in February 2026 according to the United States Department of Agriculture, about 11% of the state’s population. That amounts to about 700,000 households and $250 million in spending. Since Ohio spent about $50 billion on groceries in 2024, that means about 6% of all grocery spending in the state of Ohio comes from federal food assistance benefits.

All in all, about 1 in 17 grocery dollars in Ohio come from SNAP and about 1 in 9 Ohio residents benefitted from those dollars directly in February of 2019.

What SNAP costs could HR1 shift to Ohio?

The two largest cost categories Ohio policymakers are having to look at in the face of these new changes are administrative costs and benefit sharing. Analysts at Georgetown Law’s Center on Poverty and Inequality estimate Ohio’s Supplemental Nutrition Assistance Program spending will nearly quadruple under the new law, with the state’s $150 million Supplemental Nutrition Assistance Program obligation ballooning to nearly $540 million.

Some of this cost will come from higher administrative costs falling on the state. According to the Georgetown Law Center, Ohio currently splits a $290 million administrative obligation with the federal government, each paying half. Ohio’s share would increase from $150 million to $220 million under baseline. The remaining $320 million of new obligations would come from cost share determined by Ohio’s error rate.

How do counties fit into the SNAP cost shift?

According to the National Association of Counties, Ohio is one of ten states that delegate the obligation to administer Supplemental Nutrition Assistance Program to its counties. Among those ten, Ohio is one of six states that splits the state obligation for administering Supplemental Nutrition Assistance Program between state and county government budgets.

The County Commissioners Association of Ohio reports that the state of Ohio has appropriated $44 million for Supplemental Nutrition Assistance Program administration and requires counties to cover $41 million. They estimate that the changes in House Resolution 1 will lead to an additional $47 million in new administrative costs which the state has not determined plans for yet. Note these costs are low compared to the estimates made by the Georgetown Law Center, so these costs could end up being higher.

What can Ohio do about HR1’s new SNAP rules?

Ohio will have some decisions to make in the face of these new changes. In a best-case scenario, the state will be on the hook for tens of millions of dollars, though it seems like it will be on the hook for hundreds of millions of dollars more. The state will have four main options for dealing with this change.

Absorb the costs at the state level. This would mean either raising revenue through new state taxes or fees or cutting spending elsewhere.

Shift costs to counties. This would require counties to find ways to pay for these new costs through new revenue streams or cuts to other programs.

Reduce enrollment through administrative rules. This would mean making it harder for people to claim food assistance, which would impact food insecurity and family budgets for low-income families.

Reduce error rates through investment in administrative capacity. This is certainly one of the goals of the federal legislation: to reduce moral hazard for states by giving them incentives to reduce error rates.

What do Ohio policymakers need to watch out for as SNAP changes to HR1 are implemented?

As Ohio policymakers enter this brave new world of Supplemental Nutrition Assistance Program regulation, their eyes need to be on certain targets. The most important is error rates. Different tiers of error rates will mean swings of hundreds of millions of dollars of state obligations.

At the same time, these new obligations will mean new costs for counties, households, and local safety net systems. Policymakers will need to keep an eye on county administrative burden to see how this obligation is shared between state and local government in Ohio. Families will be impacted by benefit access, food insecurity, and churn. And in the broader support community, local food bank demand may be impacted by changes in benefits.

Changes to the Supplemental Nutrition Assistance Program do not eliminate costs for the federal government, they just move them. Decisions made by state policymakers will decide to what degree these costs will be further shifted to county governments, and county decisions will decide to what degree they are shifted to families and private food assistance networks. No matter what decisions are made, someone will still pay.