Over the past couple of months, the state of Ohio has seen a $200 million budget surplus evaporate into a nearly $800 million budget deficit. Faced with what look like a 30% annualized drop in GDP in the second quarter of 2020, the governor of Ohio has issued a budget plan for the end of the fiscal year that calls for $780 million in Fiscal Year 2020 budget cuts, with four out of five dollars in budget cuts coming out of K-12, Medicaid, and higher education spending.
Data from Cleveland.com
To state budget watchers, this move should be surprising. Ohio has saved about $2.7 billion since the Great Recession to use during a budget crisis such as the one Ohio is experiencing now. The Kasich administration had resisted Democratic calls to spend the funds when the economy was strong and the budget was stable, and now the DeWine administration has stated it does not intend to use these funds, quite literally called “budget stabilization funds,” to stabilize the budget in what may end up being the most dramatic quarterly shortfall in Ohio fiscal history.
This implies that the state could continue to cover historic shortfalls for the rest of the year, which itself is an extremely unlikely worst-case scenario even using the state’s own reported forecasts, without cutting its budget at all.
Governor DeWine has said "The 'rain' is not a passing spring shower - it could be a long, cold, lingering storm, and we should not use the fund until it is necessary." The implication of the governor’s statement has been that budget shortfalls will worsen in the coming quarters, though sources cited by the governor’s budget office suggest the economy is expected to improve over the last half of 2020 and early 2021.
Hundreds of millions of dollars in cuts to education and health care coverage means that people will not build human capital and get access to health care in the middle of a national pandemic. It also means dollars will sit in state coffers while people who want to work sit at home unemployed. Maybe the state’s decision to hold back funds in the midst of a fiscal crisis is informed by bad information. Maybe it’s informed by bad politics. Whatever it is, it doesn’t seem to be informed by the fiscal reality and economic forecasts its budget office reports.