Governor Wants Rainy Day Fund, Adjustments To Cover Deficit

By ANDREW WELSH-HUGGINS, AP Statehouse Correspondent

COLUMBUS, Ohio (AP) - Gov. Bob Taft proposed on Thursday that the state dip into its rainy day fund for the third time in nine months, announcing a plan to use about half of the $600 million left to help cover a $500 million budget deficit.

The governor wants to use $350 million from the fund. The state took out $240 million in December and $150 million last June to address shortfalls in the 2002-03 budget.

To eliminate the rest of this fiscal year's deficit, Taft also proposed saving $150 million by making adjustments in the budget, including a hiring freeze, delays on equipment purchases, delaying other agency spending and reducing end-of-the-year budget reserves.

State tax revenues have suffered "unprecedented losses" because of the recession, Taft said.

"We certainly hope the Legislature would give us the ability to tap the rainy day fund," he said. "There aren't very many options left between now and the end of the fiscal year -there's only three months to go."

The year ends June 30.

Senate President Richard Finan said he would prefer using less of the fund but recognizes the state's position.

"I'm also a realist -- we're in the last quarter," he said Thursday. "We're between a rock and a hard place. Thank God we've got a rainy day fund."

Taft's proposal for the current fiscal year is part of a plan to deal with a projected two-year, $1.2 billion budget deficit in which the state will patch this year's shortfall first and then debate a longer-term solution.

Taft said on Thursday that he will oppose a general tax increase and further budget cuts to schools, universities and the state's economic development efforts.

Beyond those areas, all other agencies could see further cuts, he said.

Taft also said he would oppose any changes to the state's corporate franchise tax paid by businesses.

"To come after them with higher taxes would be counterproductive to speeding up the economy," he said.

Taft also said he will push to control Medicaid costs paid by the state. His assistant budget director, Tim Keen, said that could include eliminating some services now covered by Medicaid.

In 1992, the state was forced to take $300 million out of its rainy day fund, leaving 14 cents in the account. Then-Gov. George Voinovich and lawmakers cut funding to state agencies and raised taxes to balance a budget that was $1 billion in the red.

Taft and lawmakers struggled for weeks last fall to address a $1.5 billion deficit first identified in October.

Taft signed a bill in December patching that deficit through budget cuts, borrowing from Ohio's tobacco settlement dollars, using rainy day funds and requiring more financial institutions that loan money to pay taxes.

Now, state budget officials say the economy proved to be in much worse shape than they realized when making those October estimates, leading to this new $1.2 billion deficit.

They also say they may have underestimated the impact of a 1999 change in Ohio law on state revenue.

The effect of the change means a decrease in revenue from the corporate franchise tax, a drop magnified by a recession.

(Copyright 2002 by The Associated Press. All Rights Reserved.)