As we have all seen, COVID-19 has had a profound impact on the American economy. And Ohio's economy as well. Prior to the onset of the coronavirus pandemic, Ohio’s economy was strong and our budget was on track.
For example, by the end of February, state revenues for the fiscal year were ahead of estimates by over $200 million. We now have the figures in through the month of April, and our fiscal year-to-date revenues have taken a dramatic turn.
In these two months, we are now below the budgeted estimates by $776.9 million. As you can see this is close to a 1 billion-dollar swing downward in just two months.
Our @Ohio_OBM Director Kim Murnieks and her team project that the state revenues will continue to be below budget in the coming months as we move through this crisis.
Further, nationwide economic forecasts have been very unpredictable, with forecasts changing weekly or even daily. These forecasts, as well as @Ohio_OBM projections, indicated to me that we needed to make significant changes to our state budget to prepare for the coming months.
As I have said, this is no ordinary time, and so we cannot continue onward as if this were a normal time. In Ohio, we have a two-year budget cycle. Each fiscal year runs from July 1st to June 30th, and we are now starting the 11th month of our 24-month budget cycle.
Today, I am announcing a $775 million budget reduction in General Revenue Fund spending for the remainder of Fiscal Year 2020. That means we have to obtain these $775 million in cuts over the next two months.
Decisions like this are extremely difficult, but are part of my responsibility, as your governor, to make. While we do not know what the coming months will hold, we do know that COVID-19 is here with us and will be here for quite some time.
Nevertheless, it does not exempt us from balancing our budget, which we are legally obligated to do. Making difficult budget cut decisions now will help us down the road and will help us while we continue our discussions for the next fiscal year.
I have decided to not draw money from the rainy day fund to cover the next two months’ deficit. We have decided to make cuts to allow us to balance the budget for the next two months. Simply stated, we are going to need the rainy day fund for next year, and possibly the next.
The cruel nature of an economic downturn is that at the time of when you are in need of the social safety net is also the time when government revenues shrink. We are trying to preserve basic services for people, while we get through this period. That is why we need stability.
I know that I have said that “it’s raining,” but we do not want to tap into that fund yet. The “rain” is not a passing spring shower -- it could be a long, cold, lingering storm, and we should not use it until it is necessary.
These decisions were not easy. We did not make them lightly, but they are necessary. As many of our businesses are making adjustments in this difficult time, so must our government.
Cuts for two months:
•Medicaid: $210 million
•K12 Foundation Payment Reduction: $300 million
•Other Education Budget Line Items: $55 million
•Higher Education: $110 million
•All Other Agencies: $100 million
•Total cuts: $775 million
•Medicaid: $210 million
•K12 Foundation Payment Reduction: $300 million
•Other Education Budget Line Items: $55 million
•Higher Education: $110 million
•All Other Agencies: $100 million
•Total cuts: $775 million
Of the money in the budget that is Ohio taxpayer-funded, only 9.4 percent is spent on operating expenses of state agencies. Over 85 percent goes out across the state as subsidies to schools, higher education, Medicaid services, local governments, etc.
So most of the budget does not get spent on state agencies, but is a transfer payment that goes out to our local schools and communities.
If we don't' make these cuts now, the cuts we will have to make next year will be more dramatic.
With regard to our state agencies, each of our agencies (with the exception of the Department of Rehabilitation and Corrections) is taking cuts, including the Governor’s office.
Regarding our state agencies, on March 23rd, I instituted an immediate hiring freeze for state employees in state agencies, boards, and commissions.
I also ordered a freeze on pay increases and promotions of unclassified and exempt staff, and a freeze on new contract series for the state.
I have asked each agency director to continue to identify savings in their budgets for the remainder of this fiscal year and next fiscal year. Moving forward, all state agencies will continue the hiring freeze as well as the freeze on pay increases and promotions.
State agencies will continue to operate under the travel freeze already in effect, with exceptions for those staff providing direct response to the emergency.
Further, agencies will immediately freeze new requests for contract services, except for those services that are necessary for emergency response, and will strictly scrutinize the continued need for those services.
And, agencies will suspend purchasing authority for non-essential purchases with continuation of only mission critical contractual services.
